Entrepreneurship & Small Business

Bad Credit Score opening a business chequing account - Incorporated

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  • Aug 29th, 2014 3:34 pm
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[OP]
Newbie
Nov 25, 2012
19 posts

Bad Credit Score opening a business chequing account - Incorporated

Hello,

Long story short I'm well on my way repairing my credit score, however I need to open a business chequing account with my partner. The business is fully incorporated with 2 directors. Due to my bad credit score will I have issues opening this account? Seeing how we are fully incorporated my assumption would be no as this business is completely separate from my own personal credit. Could someone please elaborate or confirm this. Thanks
2 replies
Deal Addict
Aug 28, 2007
1851 posts
245 upvotes
Calgary
You won't have issues opening a chequing account (business or otherwise) due to a bad credit score. As the name implies, the credit score is only relevant when trying to get credit like loans, mortgages, cards.

Generally speaking, you are correct in saying the business is a separate legal entity and would/should/could have a completely independent credit assessment. However, banks learned centuries ago that all small businesses are started by individuals; many of whom are complete idiots and wipe out the enterprise in very short order. In other words the success rate of small businesses is very low. They aren't going to risk the bank's money on such odds, so they automatically link the small business to the owner(s) personal creditworthiness. You will see in the fine print in all current account agreements that if in the unlikely event the business ends up in a negative position, the bank has the right to come after you and your partner jointly and severally. (i.e they will take you to the cleaners!).

However, there is very little risk in a simple deposit/current account so you won't have a problem opening one for your corporation. In fact, your partners credit score will probably carry you. The same can not be said about getting a loan for the corporation, unless his score is very good.

The sad truth is if you hire a really good accountant to keep your taxes low, your credit score will get lower! The debt you have now will look enormous compared to your taxable "income".
Deal Fanatic
User avatar
Nov 18, 2002
6951 posts
581 upvotes
Toronto
Just Confused wrote:
Aug 29th, 2014 4:04 am
You won't have issues opening a chequing account (business or otherwise) due to a bad credit score. As the name implies, the credit score is only relevant when trying to get credit like loans, mortgages, cards.

Generally speaking, you are correct in saying the business is a separate legal entity and would/should/could have a completely independent credit assessment. However, banks learned centuries ago that all small businesses are started by individuals; many of whom are complete idiots and wipe out the enterprise in very short order. In other words the success rate of small businesses is very low. They aren't going to risk the bank's money on such odds, so they automatically link the small business to the owner(s) personal creditworthiness. You will see in the fine print in all current account agreements that if in the unlikely event the business ends up in a negative position, the bank has the right to come after you and your partner jointly and severally. (i.e they will take you to the cleaners!).

However, there is very little risk in a simple deposit/current account so you won't have a problem opening one for your corporation. In fact, your partners credit score will probably carry you. The same can not be said about getting a loan for the corporation, unless his score is very good.

The sad truth is if you hire a really good accountant to keep your taxes low, your credit score will get lower! The debt you have now will look enormous compared to your taxable "income".
Whilst I agree with most of what you said, I don't understand how your credit score is lowered by having a low tax burden? Your income is typically not featured on a consumer credit score, it's mostly about your debt/credit ratio and your ability to maintain your credit properly. Less money to the government should equate to more money to pay down your debts so your credit score will most definitely improve.

Keep in mind different banks have entirely different means to evaluate potential customers for financial services. All have their own blend of credit scoring and some will look into your credit history for defaults/bankruptcies etc. You should be ok on a chequing account.

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