Cleaning up your credit
April 23, 2013
I own a one-person business. The business’ credit is my credit and vice versa. I have never incorporated, although I do have a business checking account. My problem is that I never can get any extra capital because I personally filed bankruptcy 11 years ago and it still shows up on my credit report. So what does a guy like me do?
Back in the day when I used to do a lot of bankruptcy law, I had a client similar to you. This guy owned a small art gallery and was always behind. Stuff on consignment often didn’t get paid to his clients in time because he was always robbing from Peter to pay Paul. Not surprisingly, it eventually all caught up with him and he had to file for bankruptcy. The last I saw him, he was walking out of his hearing, head down, dejected and somewhat embarrassed.
That is, until about six years later when I ran into him at the airport. He looked great, had lost weight, was dressed sharp, and was on his way to Europe to buy art. His story was that he learned his lesson apparently. Started over. Separated his personal and business life. Rebuilt his credit. Lowered his overhead. And he started to sell online, on eBay. He was making a good living, was being prudent with his money, and was clearly headed in the right direction.
All of those things my ex-client did are smart practices for anyone running a business, but let’s start at the beginning.
Start by cleaning up your credit.
For example, in John’s case above, there is no reason why a decade-old bankruptcy should be harming his credit. By law, a bankruptcy can stay on your credit report for 10 years and then it is supposed to fall off.
The fact is, more than one billion pieces of credit are added to credit files every month in this country and if you think that means that the system is ripe for error, you would be correct. I have a friend who can’t get a credit card right now because someone in Tennessee who has her exact same name is a deadbeat and the credit reporting agencies think they are one in the same person.
So what do you do if your past credit history, or an incorrect credit history, is sabotaging you and your business? You challenge it that’s what.
The first thing to do is to get a current copy of your credit report. By law, you are allowed one free copy of your credit report every year by going to www.annualcreditreport.com. Additionally, if a bank turns you down for a loan, that bank must disclose what report they based the denial on and again, you are allowed to get a free copy. You are also allowed a free copy if you are unemployed, or you suspect fraud or mistakes on your credit report.
Once you have your report, go over it with a fine-tooth comb and then challenge any and every mistake, even wrong addresses and typos. Also, generally speaking, any item over seven years old must also be omitted from your credit report, so challenge those too. Liens that were paid must indicate they were paid. Same with charge-offs.
Challenge all of these things in writing, with whatever documentation you have. By law, if the reporting agency cannot verify the debt as it is indicated on the report, it must be deleted. Cite the law that requires this – the federal Fair Credit Reporting Act (FCRA.)
Then, check again the next month, and challenge again. And then again the next month. Once your credit report is accurate, that alone can boost your credit score. Other things to do include, of course, paying off debt, paying off old debts, and paying debts on time.
The real smart course would then be to separate your personal and business assets and debts. I will get into this more next week, but the key here is to incorporate and then create some business credit.