When Addiction Harms Your Credit Score: How it Can Impact Your Business

Many people believe that your personal credit score will not adversely affect your business.  Unfortunately for those with a poor credit history, it can.

What’s more, if you were behind in payments, defaulted on loans, accumulated medical expenses, were out of work or had other negative impacts on your credit during your rehabilitation for addiction, you may have to work to recover your personal and professional records.

The good news: you can build a buffer between your personal and business financial records and also recover your credit score.

A Legal Separation

If you haven’t already, set up your business as a separate entity.  The Small Business Administration has resources to both help you decide what type of entity to set up and to guide you through the process.  Set up and LLC, C Corp or S Corp.  A business legal expert can give you the details you need.

At the very least, you can set up an EIN (Employer Identification Number) on the IRS website, rather than to use your personal social security number for business purposes.

Even if you have separated your business, your personal finances can have an impact on your business credit.  It may help, but it is not a guarantee.

Separate But Equal

A separation in name between your personal identity and your business incorporation is not enough.  Separating your daily functions and record-keeping is also an essential part of success in business.

Separate your personal and professional time and finances, both, including:

  • A business checking account—keep income and outgo completely separate from personal finances.
  • A business credit card—if you’ve been using personal credit cards for business expenses, it can have quite a negative impact on your credit history.
  • Pay yourself a salary, and track it clearly. Secure an accountant to help you with those details.
  • Keep track of personal items used for business purposes, and separate as much as possible. For example, you may want to have a work cell phone or a work car if your business requires lots of phone work or driving (such as working as a contractor).

If you keep your business functions separate from personal expenses and functions, plus educate anyone like employees or family who work with you about how to assist with keeping separate records, you will have the best chance of keeping separate credit scores.

Rebuild What You’ve Lost

Fortunately, even if your credit score suffered for years as a result of the harm done during addiction and during other struggles, credit scores can be changed and improved.  It may take time, sometimes even several years, but you can turn the tide on bad credit.

  1. Monitor—pull your credit reports on annualcreditreport.com or through a free monitoring services such as Credit Karma.
  2. Get current—even if you can’t pay minimum payments, pay something each month.
  3. Communicate—reach out to creditors about repayment plans.
  4. Consolidate—if possible, even if it requires a personal loan, it may be best to consolidate what you owe to make more effective payments (and lower interest).
  5. Make it a way of life—just like a long-term goal such as beating addiction or weight loss, rebuilding a credit score will take time and patience. Make it part of your regular routine.

Consult the Pros

Consulting a lawyer about your business entity and/or an accountant about your business set up may sound like an expensive endeavor.  It doesn’t have to be.  It starts with research and utilizing free online tools.  It includes keeping good records and careful planning.  But you can rebuild your business and even your personal credit in short order.

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