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Entrepreneur’s Credit Report Hit by Business Debts

By Faye Mergel
Published: Thursday, December 24th, 2009

After starting his Limo business back in 2007, Byron Hebert knew a credit card would be very helpful in managing his business’ cash flow. So he applied for it and got two plastics from Capital One, with limits of $7,000 and $25,000. However, he was not aware of what his card provider has been doing to his credit report, until he applied for a loan.

Entrepreneur’s Credit Report Hit by Business DebtsIn November, Hebert found out that Capital One was reporting his business accounts on his personal credit report. When creditors checked his reports, it gave them the impression that the Daytona entrepreneur was maxing out all he had. Hebert says it should not be the case.

Capital One spokesman Steve Schooff, retorts that what the bank is doing is an industry standard. However, some banks say that has not always been the case. American Express and JP Morgan Chase explained that they check a cardholder’s credit report during application, but do not report anything to the bureaus unless the account becomes delinquent.

Instead of recording a business cardholder’s activities to a credit bureau report, they go to commercial bureaus such as Experian’s Small Business Services and D&B. Debt adviser, Geri Detweiler, says business owners prefer this practice since it allows them to borrow for their businesses without having to appear as if they are heaving personal debts.

When debt-loaded business credit card’s purchases are transferred to a personal credit report, effects could be catastrophic. In Hebert’s case, the addition of the $20,000 business debt to his personal debts grossing at the same amount caused Bank of America (BofA) to write him off as a cardholder. To make things worse for him, his $35,000 limit with another plastic from BofA was cut down to $9,900. He was already carrying $9,700 in debt from the account, which made his score drop from the high 700’s to near the 600 range.

BofA refused to explain this case since they do not comment on individual cases. However, Betty Reiss, the bank’s spokeswoman, says the company keeps track of accounts to determine risks and may make adjustments if necessary.

Capital One is the first giant bank to compile business records along with personal credit reports even if the cardholder is in good standing with his debts. Business owners believe the practice is unfair, but industry specialists say there is not much they can do since it is not illegal.

Finance expert, Gene Truono, noted that banks are allowed to do so as long as entrepreneurs allow their creditors to access their personal credit report.

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