I Thought Only Poor People Had Bad Credit

A new client calls me because he needs some bookkeeping services. He has a flourishing software design business, brings in almost $400,000 a year, but he hasn’t paid his taxes in two years. It’s not that he doesn’t want to, he just hadn’t kept on top of the bookkeeping, so he really doesn’t even know what to report.

He frequently travels for his business and he has 4 to 5 people that work for him that he pays to help him on his projects. They frequently have to pay for work-related expenses, like airline tickets, taxi cab rides, meal expenses. They send him receipts and he reimburses them for the costs. I suggested to him that he get business credit cards. Give the cards to the people that work for him. When they have things they need to pay for that should be charged to the business, they should put it on the credit card. The bill will come to him and that way he doesn’t have to worry about reimbursing.

“Oh, I agree,” he said, “But I can’t get a credit card right now.” “Oh, why not?” I asked. “My credit is shot,” he responded willingly. Not wanting him to feel judged or uncomfortable I said, “Oh, I understand. Money was probably tight when you started your business.” “Oh, no. I always had money.” Then he offered the whole story.

A few summers ago, he had a credit card with a $20,000 limit. He took his girlfriend to the Bahamas, charging a good portion of the trip and all the fun on the card. When the bill came, he had the money to pay it, but he really wanted to spend the money on other things related to his business. He planned to pay the bill, eventually, just not right now, when he was in the middle of some big client deals. So he waited until January, six months later. He said the credit card company kept sending reminder bills, then they would call him, and eventually collection notices arrived, but he disregarded them. He always knew he was going to pay the bill eventually and figured that once they got their money, the matter would be closed. And when January came he paid the bill, plus fees and interest. Matter closed, so he thought.

A year later when his business really started to grow and he realized he needed to apply for a business card, he was so surprised to be declined. The credit card company explained, that he had bad credit – his score was in the mid 500’s. “I was really surprised,” he told me. “Apparently my income didn’t make that much of a difference. I thought they would look at how much money the business made and they wouldn’t pay that much attention to my credit score.” “Actually,” he admitted finally, “I thought only poor people had bad credit.”

“So I’m working at raising that score, which is why I have you in here cleaning up my finances. I’m realizing that making money isn’t enough. I really need to pay attention to all these other details.”