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Can a Business Loan Appear on My Personal Credit?

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Gina recently posted this question on the Credit.com CreditExperts Facebook page:

Are there laws in place to stop a business account from being reported on my personal credit? If so how do I go about getting it off my credit?

This is an important question because many businesses rely heavily on their personal credit scores to obtain financing, especially in the early years before they have established strong business credit ratings.

There are no laws that specifically prohibit information about business loans on personal credit reports. Anytime an owner personally guarantees a business loan, there is a possibility that the loan could show up on his or her consumer credit reports. As standard practice, however, loans obtained strictly for business purposes don’t appear on consumer credit reports, with a couple of notable exceptions:

If, as a business owner, you personally guarantee a business loan and you default, then the lender will often report the default on your personal credit reports. Most small business credit cards, for example, require a personal guarantee and will report a default on the owner’s credit reports.

Capital One has been reporting most small business loans on owners’ personal credit reports in 2009. Even if the bills are paid on time, debt carried for the business result in lower credit scores.

There are a couple of other ways that business debt can affect your personal credit:

1. If you use personal credit cards to fund your business, that debt and payment history will impact your credit scores. It may help them or hurt them, depending on the information reported and other information in your reports.

2. Tapping a home equity line of credit to fund your business will affect your scores. Again, the impact could be positive or negative.

How to Keep Business Debt Off Personal Credit Reports

Set up a proper business structure, which can include an LLC, S Corp. or C Corp. “As a sole proprietor, your business and personal credit will be one and the same,” says attorney Garrett Sutton, author of Own Your Own Corporation and founder of CorporateDirect.com.

Get a business credit card that does not report routine activity to consumer credit reporting agencies, then pay the bills on time. (Virtually all major small business cards will report if you default on the card.)

When in doubt, ask before you apply. Ask the lender whether it will check your personal credit reports for a business loan or payment plan (those inquiries affect your scores), and also ask about its policy for reporting those loans.

Consider alternatives. Before you tap your home equity line or personal credit cards to launch your venture, talk with a tax or financial advisor about alternatives such as a loan against your 401(k) or other retirement plans. (You cannot borrow against an IRA.) These loans don’t show up on consumer credit reports.

Image: SqueakyMarmot, via Flickr.com

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  • wesley

    I RECEIVED A CREDIT CARD IN THE MAIL FROM BANK OF AMERICA FOR MY BUSINESS THAT I NEVER APPLIED FOR. THE CARD JUST SHOWED UP IN THE MAIL ONE DAY. I USED THE CREDIT CARD FOR YEARS AND ALWAYS PAID IT ON TIME. IT NEVER REPORTED TO MY PERSONAL CREDIT REPORT. LAST YEAR I HAD TO SHUT THE BUSINESS DOWN FOR LACK OF WORK. I REMAINED PAYING THE BUSINESS CARD AS LONG AS I COULD BUT HAD TO STOP BECAUSE I JUST WASN’T MAKING ENOUGH TO COVER ALL MY PERSONAL EXPENSES. I HAVE EXCELLENT CREDIT AND ALWAYS PAY MY BILLS. BUT RECENTLY BANK OF AMERICA TOOK $600.00 OUT OF MY PERSONAL ACCOUNT TO PAY THE CREDITE CARD, I THEN CHECKED MY CREDITE REPORT AND DISCOVERED THEY BEGAN REPORTING THE BUSINESS CARD ON MY PERSONAL ACCOUNT. IS THERE ANYTHING I CAN DO ABOUT MY CREDIT REPORT CONSIDERING I NEVER APPLIED FOR THIS CARD OR AGREED TO BE FINICALLY RESPONSIBLE FOR THE CARD.

    • Gerri Detweiler

      Wesley,

      Most business credit card issuers reserve the right to report these cards on personal credit reports if you default. (Capital One reports small business card activity even if the account is current.)

      As for the comment that you never applied for the card, I am not sure what to suggest. Under the Truth In Lending Act, it is illegal for credit card companies to send unsolicited credit cards. I am not aware of an exception for business credit cards. If you want to pursue that angle, you’d need to try to get help from a consumer law attorney.

    • dru

      I have the exact same scenario as you, I never applied for a business credit card and received one in the mail. So I never signed to be a Guarantor. I even went a step further when I could not pay the business credit card, I called B0fA and they said that I was not personally liable because they do not have me as a Guarantor. I missed the card for 4 months now, my credit report has BofA on there now. Don’t know why they will do this since I had an LLC as well.

  • http://www.linkedin.com/pub/neil-advani/a/37a/8b3 Neil Advani

    Indeed a good news to small business owners. anyways i like the content of your blog its fresh and unique. keep the good information coming please.

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  • big rich

    If i have an SBA loan on my business’ building and i’m late on the payment, will it hit my personal credit? I signed a personal guarantee.

    • Gerri Detweiler

      It’s doubtful, but I can’t guarantee it. These loans typically aren’t reported on the owner’s personal credit unless they default. But you can check your credit reports now to be sure that it’s not showing up. (If the positive payment history isn’t reporting then it’s doubtful that one late payment will show up.)

  • magoo

    I have a small business and we have an SBA loan, which is personally guaranteed by us, the owners and secured by our home. We never miss a payment. We are trying to get a home loan to consolidate the higher interest SBA loan and business related credit cards. We have no mortgage, so our credit report shows only credit card debt and having only one kind of debt is a negative. The SBA loan is not on the credit report. On the one hand, it would show a different kind of debt and regular payments, but on the other hand it would show an additional $65K in debt. Would it be helpful to have it on there and if so how do we get it to show up?

    • http://www.Credit.com/ Gerri Detweiler

      It would be up to the lender to report and you can’t force them to do so. If they report those types of loans then it can be added; if not, you’re stuck. It doesn’t hurt to ask them. (An installment loan like that may be helpful since it’s paid on time. The amount of debt shouldn’t be a problem.)

      If not, you may need to establish a personal loan or some type of installment loan, but it may take some time to build that reference so it will help your scores.

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