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Business Credit Cards And Personal Liability
By Allisson May
For a newly established without corporate credit, the basis for approval for a credit card would be the owner’s personal credit history. If you carefully examine your contract, it contains a clause that discusses your personal liability as the owner of the credit card account. What does the personal liability provision mean and how should this affect you?
Personal Guarantee on Credit Card
When you sign your credit card agreement, you also agree that you would personally guarantee the account. This means that in case the fails and repayment becomes difficult, you- the owner is personally liable to pay off all charges in your credit card.
Under the personal liability clause, the cardholder’s personal credit history can be damaged if there would be unpaid charges on the account. If your company incurs a large amount debt, your own credit rating can drop even if you don’t have any problem with your personal accounts. As the owner of the and the owner of the credit card, you are directly responsible for this account.
With this in mind, entrepreneurs should be cautious with the use of their small credit cards. Bear in mind that in the event that your employees abuse the account- using their supplementary cards, you will still be accountable to pay off all bills charged to your name. This is why supplementary cards must only be given to your most trusted employees. To avoid the possibility of abuse, closely monitoring your employee’s spending habits is a must.
Can You Get Off from Personal Liability?
Is it possible
to be free from the personal liability clause? The answer is yes, it is possible. If you have been using your credit card for at least two years or more and your record shows that you’ve been a consistent payer, you can request from your credit card company to remove the personal liability provision. Still, the decision would depend on your credit card issuer.
It is recommended for owners to register with a credit bureau immediately. As soon as you’ve opened the business, you can establish a separate credit history for your company by signing up with major credit reporting agencies like Dun & Bradstreet and Experian (Business). Once this is done, you can apply for a credit card to start building up your credit more easily.
Be sure to select a credit card that will report your payments to the credit reporting agencies, not to the personal credit reporting agencies. Building up your corporate credit may take some time so establishing as early as possible would work to your advantage. As we’ve said, after 2 years, you can request your credit card company to dismiss the personal liability clause and completely separate your credit from your personal credit history.
However, be reminded that separating your and personal credit history does not mean you should relax on managing your credit card. It is still important that you watch out your credit card use, that you stay within your credit limit and that you submit your payments on time. By doing this, you can be sure that you‘ll maintain an excellent credit standing.
Allison May is a credit consultant and a writer for Credit Creators. The resource provides consumers with valuable advice and information on credit cards for bad credit,credit cards for good credit and other credit-related issues. Its main objective is to help people build good credit.