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There are lots of reasons people decide to incorporate a business, but the biggest comes down to personal protection. If the business is sued, for example, you’d want to be able to protect your home and your savings. Many people choose to incorporate their business for that very reason.

A reader who incorporated wrote to us saying that a defaulted credit account for his business was showing up on his personal credit report, and he wanted to know what he could do or how to dispute it.

My company that is an S Corp applied for an American Express card 10 years ago. All has been great except for the past 3 years we have barely kept the doors open and eventually defaulted on $7,000 on the card. The card was made out to the company and paid by the company all along. The reason people incorporate is for personal protection.

We asked Garrett Sutton, a Credit.com contributor, author and attorney who is an expert in corporate structure and limiting liability, and the reader probably won’t be too happy to hear what we learned.

When a corporation gets a business credit card, the person filling out the application normally has to sign a “personal guarantee,” Sutton explained. And with a stroke of a pen, an important piece of the protection offered by the incorporation is essentially invalidated — but only for that creditor. That not only means a credit card issuer would be within its rights to report the default on a person’s credit report (assuming that person signed a personal guarantee), but also that the person who signed is on the hook to repay the debt. Signing a personal guarantee also grants permission to the creditor to go after personal assets for the repayment of a debt.

Not everyone that works with a company is likely to require a personal guarantee. Often phone and utility companies do not, Sutton said. And it’s possible that an office supply store would extend credit without a personal guarantee. But in most cases, credit or loans require personal guarantee.

It’s also possible that our reader did not sign such an agreement. Sutton’s suggestion in that case: “Call the bank (or card issuer) and get a copy of the agreement. . . . Say, ‘I don’t recall signing a personal guarantee — would you show me the document?'” he advised.

Without a document, the creditor should not be reporting the default on the reader’s credit report. If no document exists, our reader could dispute the default listed on his credit report.

There are some lessons from this reader’s problem. First, read and understand what you sign, even if it’s a “standard form.” If you’ve signed away some rights (and that is not uncommon, particularly with arbitration clauses), be sure you’re aware of it. It’s also smart to keep copies of the documents you signed.

If you’re concerned about how a delinquency could be impacting your credit, be sure to check each of your three credit reports for free once a year, and use a free tool like Credit.com’s free Credit Report Card, which gives you access to two of your credit scores along with an easy to understand breakdown of the information that is used to determine your credit scores.

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