The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Information on this website may not be current. This website may contain links to other third-party websites. Such links are only for the convenience of the reader, user or browser; we do not recommend or endorse the contents of any third-party sites. Readers of this website should contact their attorney, accountant or credit counselor to obtain advice with respect to their particular situation. No reader, user, or browser of this site should act or not act on the basis of information on this site. Always seek personal legal, financial or credit advice for your relevant jurisdiction. Only your individual attorney or advisor can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, contributors, contributing firms, or their respective employers.
Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them. Compensation is not a factor in the substantive evaluation of any product.
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.
Image: Ingram Publishing
April 9, 2024
Credit Cards
October 21, 2020
Credit Cards
August 3, 2020
Credit Cards