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When business owners are shopping for a small business credit card, I encourage them to look for one that does not report the account on their personal credit reports. This helps separate your business and personal credit, and protects your personal credit scores from any damage if you carry a balance on that account.
Capital One is one of the top issuers of small business cards, and until recently, did not report business credit card account information to personal credit reporting agencies. (That’s unless you default – almost all will appear on your personal reports if you can't pay.) But Capital One has changed its policy and has begun reporting those accounts to the three major personal credit reporting agencies, Equifax Experian and Trans Union. That means small business credit cards now appear just the same as personal cards on business owner’s credit reports.
If you carry little debt on your Capital One small business credit card and pay the bills on time, this change may not affect your credit scores, and may even help. But if your business, like many, is experiencing cash flow issues and carries a high balance relative to the credit limit, this account can hurt your credit scores. That’s true even if you pay on time.
Keep in mind that your ratio of balances to credit limits on your credit cards (your utilization ratio) is an important factor when calculating your credit scores. Ideally you want to keep your card balances at 10% or less of your available credit. That doesn’t leave you with a lot of room to spend or revolve, and will be especially hard on business owners who have seen other access to credit dry up.
As we all know by now, if your credit score dips, your other card issuers may drop your credit limits or raise your rates for future purchases - at least until the consumer protections of the Credit CARD Act go into effect in February 2010. (As of this writing, October 2009, Congress is considering moving the effective date up to December 2009). Even after that law goes into effect you can find yourself with higher rates for new purchases or loans, and less access to credit in general, if your scores are low.
I am against this change for a number of reasons, not the least of which is the fact that small business owners may have chose this card precisely for the reason that they want to separate their business and personal credit. To change the rules right during the middle of the worse credit crunch most business owners have seen is unfair at best. Secondly, businesses that are incorporated and run professionally are legally separate entities. Their credit histories should be separate if they pay their bills on time. (If you default then a personal guarantee kicks in, and the account will be reported as late on your personal credit.) And what about a business owner who is trying to get a mortgage or car loan? Should they personally pay a higher rate because of the businesses' debt?
If you have a Capital One small business card with a balance you can't pay off right away, and are concerned how it will affect your credit, here are your options:
- Review your personal credit reports. Go to AnnualCreditReport.com or another credit reporting service. Find out if Capital One is reporting your business account on your personal credit.
- Speak up. Go ahead and write a letter to customer support but don't expect much of a reply. In this case, I recommend going straight to the top. Write to Richard Fairbank, CEO, Capital One
- Switch. Find a small business credit card that doesn’t report to your personal credit reports as long as you pay on time. Chase has recently released four new cards under the INK label, and I have an email from them confirming they do not report to your personal credit reports. It you do switch, let Mr. Fairbanks know why.
- Stay in touch. Let me know if you have seen your credit scores affected by this change, and follow my blog. No doubt a class action attorney will be taking a look at this issue, and when I find out, I’ll let you know.
Remember Capital One was the issuer who took a lot of heat for failing to report credit limits on those accounts, but after a great deal of prodding, they changed their policies. Maybe we can make this change happen even faster.
Gerri Detweiler’s mission is to provide reliable, unbiased answers to your credit questions. She is the co-author of Business Credit Success: Get on the Financing Fast Track and serves as Personal Finance Advisor for Credit.com.
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Latest Comments on this post
Capital One has screwed me over royally. This is more than just a rant, this is a warning. I know the majority of everyone on this blog is a small business owner, who started small and has been working extremely hard to stay a float during these trying economic times. If you have a Capital One card I suggest you read my warning.
Here is what Capital One did, and how it may affect you as well. Capital One has now decided to report Business Credit Cards as personal debt to the primary executive?s credit report. Read this blog which sums up the entire thing: http://www.allbusiness.com/company-activities-management/company-structures-ownership/13280206-1.html
Let me explain how this affects me. I am the 50% owner of Daytona Limos which is a Florida based corporation. Daytona Limos is set up as its own corporate entity, thus having its own ETN number for taxing paying purposes and credit purposes. As most of you know who have a company set up this way your businesses credit and debts do not affect your personal credit in any manor unless you default on your account in which case creditors can come after the main executive that provided their social security number.
In 2007 I opened two Capital One small business accounts, and as with most business credit cards in addition to the business ETN number they must have an executive?s social security number to open a card. Capital One started out very good to us, they where the first and third credit cards the company was able to secure. The cards combined have a credit limit of $30,000.00 which has been very helpful in growing the business. Both of the cards for the first year offered 0% interest on all purchases and now have an excellent APR of 7.9% fixed for all purchases. Daytona Limos has been a Capital One Business Card holder since spring of 2007. During which time we have never exceeded our credit limit or been late on a payment. During our almost 3 years as a card holder our balances have fluctuated from near the limit to at other times the balance being very low, depending on cash flow different times of the year.
I have been very pleased with Capital One until today. I am now enraged beyond belief at what they are doing to all Small Business Card holders. Capital One now reports the businesses debt as your own personal debit. So now overnight my credit score and debt to income ration has been screwed. Now when my credit report is pulled it shows I owe an extra $20,000 of credit card debt from Capital One. Now if this wasn?t bad enough it shows on your personal credit report as personal debit, so when other lenders look at your report they have no idea its from a business card.
I just discovered Capital One had screwed me today when I received a letter from my personal Bank of America credit card which I have been a card holder of since 2001, during which time I have never been late on a payment or over the limit. Bank of America notified me that due to a recent review of my account that I was no longer considered a worthy risk due to my high credit card debt and debit to income ratio. I was baffled as to how this could be because I check my credit report each month. I have a few personal credit card accounts with balances but nothing major. I have never been late on any payment for any account. I have never had any collections or repossession in my lifetime. The letter also notified me of changes they made to my to Bank of America credit card accounts. My first card with them which had a $10,000.00 credit limit and a zero balance was closed. The second card I have with them with had a $35,000.00 limit and a $9,700.00 balance, they reduced my credit limit to $9,900.00. So basically I now have $200.00 available credit with them. I called Bank of America to see what in the world had caused this substantial change. That is when I found out Capital One was now showing my business card as my own personal debit. I spoke till I was blue in the face to Bank of America and they could care less and kept saying I needed to work the issue out with Capital One because their report shows it as personal debt.
I checked my credit report right after the call and sure enough there it was, an extra $20,000.00 of credit card debit now shows up on my personal credit report with all 3 bureaus. The debit shows as Capital One and shows my business account number however it says nothing ...
The commercial series is a little to close to the truth. Capital One is now marauding its way through the lives of small businesses and the financial lives of the entrepreneurs whose presence accounts for the majority of employment in this country.
Advanta folds, CIT on the brink... those lenders who step in to fill the void and who offer competitive products with features that benefit small business will provide choices to the life blood of the American economy, small businesses. This article suggests Chase has recognized the needs of the entrepreneur.
"Whats in your wallet"? Vote with your feet.
How can they do this? And if they can do this, what is the point of forming a Corporation over any other classification when your business and personal finances can be intertwined?
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Let me tell you the story. My company has some larger balances on the Capital One cards that we are paying off over time due to cash flow. When Capital One started reporting to my personal credit report, the snowball effect started. Since this added a large amount of revolving debt to my personal credit account, a few of my personal credit card companies started lowering my credit limits to the balance on the account.
It started off with my Discover card with a $15,000 credit limit and roughly $2,000 as the balance. Soon after Capital One started reporting my business cards on my personal credit report, Discover sends me a letter and says they are lowering my credit limit to something like $2,100. So, before I had an ?OK? ratio on the Discover card in relation to credit limit and balance, but now the credit limit shows nearly 100% used. As most of us know, this is bad on the credit bureaus scoring scale. So, my credit score took another hit. Then I have some credit cards with Chase with similar scenarios as the Discover card and they lowered my credit limits to near the balance. Again, my credit score took a hit because of the ratio on the credit limit to balance of these cards. This has happened now since November to almost all of my credit accounts including Sears, Macys, Citi Bank, Home Depot, Lowes, etc? each time they lower my credit limit to the balance or near the balance, it looks like I?m maxed out then on that card. Just today, Citi Bank lowered my credit limit to $50 above my $1,500 balance, from a $10,000 credit limit.
On top of all this, my homeowners insurance was up for renewal this month, and the quote I got was $600 more then last year due to my lower credit score. I have no delinquent accounts, never been late on anything on my credit report and have no public records for anything. This is just plan crazy and really impacting me personally from a financial standpoint.
Is there an attorney out there that would be willing to fight these banks, that we all bailed out last year, and try to stop this madness. It is only hurting the small business owners in this great country and is ultimately going to affect the economy even more!
I?m mad as he!!
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