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Missing payments on business credit card can hurt personal credit

By Elaine Pofeldt

Merchants who are propping up their small businesses with credit cards are risking damage to their own personal credit if they fail to make payments on their company cards, experts say.

Missed business credit card payments can damage your personal credit score

According to several experts, even paying small business card bills more than 30 days late can chip away at your credit score. Here's why: To get a credit card for a small business, you most likely signed a cardholder agreement in which you guaranteed the debt, says Steven Katz, director of consumer education for TrueCredit.com, a division of the credit bureau TransUnion. If so, you may be held personally responsible if your store can't pay the balance, he says. The credit card company can potentially report late payments to credit bureaus after they become 30 days past due, which will damage your personal credit rating, says Katz.  (If you are not sure of your obligations and don't have a copy of the contract you signed, ask your credit card issuer to send one to you.)

That's not the only way a late payment on your business card can hurt you if you are the guarantor. The percentage of available credit that you use determines 30 percent of your personal credit score, says Edward Jamison, a credit attorney and founder of Jamison Law Group in Los Angeles. Generally, the lower the percentage you borrow, the better your score.

Many credit card companies don't report the debts on your business cards to credit bureaus if you pay on time, so the balances don't count toward the total that the bureaus use to calculate your credit score, he says. But if a credit card company notifies the bureaus of a late payment on a business card, they will use the balance on it to recalculate your personal score, he says. Suddenly, you may appear to be a lot closer to being overextended than before. There's no way to say exactly how much this will affect your score, given that each person's profile is unique. But for example, Jamison says, "having maxed-out credit cards can reduce your credit score by more than 100 points."

Before your business' financial predicament becomes dire, Katz recommends you contacts your credit card companies immediately to work out a payment plan, a temporary reduction in your minimum payments or a combination of both. "If they don't hear from someone, they're most likely going to take some action to collect the debt," he says. In today's economic times, credit card companies may be more flexible than you expect. "Anything they can recoup is a benefit to them," Katz says.

If your business' debts are mounting and you have to make some tough decisions, it would be a good idea to arrange a free session with a nonprofit credit counseling agency right away, says Sandy Shore, a senior counselor with Novadebt, a nonprofit credit counseling agency based in Freehold, N.J. A good counselor will help you to evaluate options from finding a second job to pay the debt to filing for personal bankruptcy.

To find a reputable counselor, get a referral from your credit card company, the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling, she advises. Ask for an advisor who knows how to evaluate both business and personal finances. "You want someone who is going to go over your budget with you and give you ideas on how you can change things," she says.

Published: May 1, 2009

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