Businesses have credit reports just as people do, which help lenders decide whether a business is creditworthy and how much interest to charge. Though the limited liability company has a separate credit report from its owners, in some circ*mstances both credit reports -- yours and the LLC's -- will be affected by certain credit information.
LLC Debts
If the LLC has debts that are taken out in the company's name alone, only the LLC's credit is affected by whether those debts are paid on time or not. For example, say that the bank makes a $50,000 loan to the LLC and none of the LLC members cosign or guarantee the loan. If the LLC goes bankrupt, only the LLC's credit gets hurt -- it won't show up on the credit reports of the members.
Advertisem*nt
Article continues below this ad
Personal Guarantees
If, on the other hand, you've personally guaranteed a loan to the LLC, the loan shows up on your credit report as well. Especially with new businesses, lenders often want an owner to be personally liable in case the business doesn't work out. Of course, if the loan gets paid off as agreed, this can actually help your credit score because it improves your payment history: the LLC paid off the loan as it was supposed to. However, if the LLC can't pay back the loan, or makes late payments, that shows up on your credit report as well.
More For You
Higher Debts Owed
Even if the LLC pays the loan as agreed, it can still hurt your credit report, especially if it's a larger loan. According to the Fair Isaac Corporation, which developed a widely used credit scoring algorithm, 30 percent of your score comes from the amounts owed on your credit report. So, if you have a $150,000 business loan that you personally guaranteed, that's going to show up on your personal credit report because you might have to pay that out of pocket, which will lower your score and could prevent you from borrowing for personal purposes.
Advertisem*nt
Article continues below this ad
Only Guarantors Affected
Only individuals who cosign or guarantee an LLC loan have their personal credit affected by it. If you don't cosign or guarantee a loan to the LLC, your credit report is safe. For example, say that you're one of three owners of an LLC looking to get a loan from a bank. If the bank requests a cosigner and another owner agrees, but you don't, you're off the hook. Only the LLC's and the cosigner's credit reports are affected.
