Dear Credit Score Report,Iopened a business credit card for my old company, which was bought out. Whenthe new owners purchased my company, they assumed the debt. However, theyinformed me they can't pay the account any more like they were supposed to. Ichecked my credit, and the card doesn't appear. If the account goes bad, willit be listed on my personal credit report? The debt is no longer mine. Theaccount was just never closed, which was my mistake. Thank you. -- Steve
Hey Steve,There's one guaranteed way to know if that unpaid businessdebt will appear on your personal credit history: Ask the card issuer.
To start, pick up the phone and call the bank that issuedyour business credit card. When you reach the bank, tell about the sale ofyour business, the current situation that you described above and your concerns about the impact on yourpersonal credit history. Most importantly, you'll need to find out the details ofyour agreement with that bank, which was signed when that card was firstopened. That agreement may supersede everything else: If the agreement says thedebt remains your responsibility, regardless of the company's sale, yourpersonal credit may suffer if the bank doesn't get paid.
"From a credit perspective, it all depends on what wasin that agreement signed with the original card issuer," says TracyYarmolich, assistant vice president of commercial information solutions withcredit bureau Equifax.
- Personal guarantee. As a personal guarantor, you are essentially a co-signer on the account and remain liable for any debts the business incurs. "You have personally guaranteed you are going to be responsible -- and are responsible even if there is an ownership change," says Yarmolich.
- Business guarantee. This type of agreement is established between the company and the card issuer, making the business itself (rather than the current or former owner) responsible for repayment. With this type of agreement in place, you should be safe. The bank "can't go after the former owner for payment once the business is sold," says Yarmolich.
- Combined guarantee. Some bank agreements may involve a combination of the two types of guarantees described above. The exact details will depend on the issuer. American Express, for example, has previously explained that some of its products offer "joint and several liability," which holds both the business and owner responsible for debts.
All of this means that it's crucial that you update the card issuer regarding the sale of your business. Don'tassume the bank knows the details of your situation. The bank would likely have no reason to think anything has changed, assuming it isgetting repaid each month. The bank"will keep cashing the check no matter whose name is on it," says GreggWeldon, chief analytical officer with AnalyticsIQ and a former score modelbuilder for Equifax. However, once those payments stop, the bank will definitely takenotice. As a personal guarantor, "if he sold the debt to this new company,and the creditor doesn't know anything about it, he's still on the hook"for repayment, says Weldon.
You should also ask the bank about its credit reportingprocedures. "In general, the debt could appear on both the personal or thebusiness credit bureau report, depending on the terms and conditions of theaccount and how it is being reported by the credit grantor," says TorstenGerwien, vice president of decision sciences at credit bureau Experian. That means the bank could be reporting thedebt to your business credit report, leaving your personal report clear of thedelinquency -- for now.
Once the repayments stop, however, the bank will come afterthe personal guarantor using all the weapons at its disposal,including alerting the credit bureaus to the delinquency. This is when thatunpaid account may show up on a personal credit report. The bank could eventake the personal guarantor to court.
This approach may sound like a chore, but it's moreeffective than simply hoping the unpaid business debt will just disappear.
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