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Credit cards for the self employed

Credit cards for self employed people work like any other credit card, but to get one requires a history of regular secure income

Finding a credit card when you’re self employed can be a little bit trickier than if you’re working in a permanent full-time job.

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If you are self employed, finding a credit card isn’t always as easy as it might be for someone who has the security of a regular income.

Credit card providers assess what the chances are of you not paying your credit card debt. But there are other factors at work when credit card lenders decide whether or not to accept your credit card application.

Self employed credit card providers

While there are no specific self employed credit card providers, there are many lenders willing to offer credit cards to those whose financial circumstances are not as common, such as the self employed, those new to the UK, people with bad credit, low income and those with no credit history.

Having said that, even among this group of credit card providers, there are different sets of criteria they will be looking for when making a decision to approve or decline a credit card application from someone who is self employed.

Some self employed credit card providers are more interested in your income, the regularity of it and how secure it is.

Meanwhile, other self employed credit card providers are more interested in your credit history, how successful you have been in paying off previous debts – and whether or not you have missed payments, been declared bankrupt or had any CCJs (County Court Judgements) against you.

Either way, it is important to have a good credit score and understand what your options and limitations are before applying for any kind of credit.

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Getting a credit card if you’re self employed

There are a couple of steps you can take to reduce the risk of being rejected by credit card providers if you’re self employed.

If you are concerned that you may have a less than perfect score or even have a bad credit rating, check with the credit reporting agencies who can give you access to your full credit report – some of them will offer free trials.

Your credit history doesn’t just relate to times you have borrowed money, in the form of, say, a mortgage, loan, credit card or overdraft. It also relates to utility bills, mobile phone contracts, if you are on the electoral register, as well as a number of other factors.

As your credit score is calculated based on your financial history, it is vital you look back at any instances where you might have missed payments or got into bad debt. There are a number of ways you can also improve your credit rating.

Improve your credit score

There are multiple things that could impact your credit score:

  • Whether you are registered to vote
  • Whether you have any credit cards you’re not using
  • If you’ve made a high number of credit applications in a short space of time
  • If you are registered on the electoral roll
  • If you move house frequently
  • If you have existing joint accounts open
  • Substantial fluctuations in your income

If your name is on your utility bills and you pay them back every month, that will work in your favour on your credit report and help you to have a higher score. However, if you miss a payment this will negatively impact your score and will make it harder to find a suitable credit card.

Individual circumstances and credit applications

It can be impossible to explain individual circumstances or some people who are self employed and looking for a credit card.

For example, you may have three months in a year when you make much less money than the rest of the year, but overall your annual income is higher than the required level set by a credit card provider – this might still reduce your chances of being approved.

The good news is some lenders may overlook one or two problems in your financial history, especially if you have a proven income capable of comfortably handling monthly debt repayments.

The bottom line is if you’re self employed and your work is regular and consistent then you have a better chance of being approved for a credit card.

Managing credit cards and being self employed

In order to set up your own business it is likely you will have to operate while in debt as you’ll need some kind of credit, be it a loan or credit card to pay for a lot of the start up costs.

If you’re self employed and take out a credit card in your name, rather than in your business name, then any debt you have will be tied to you, and what you do with that credit card will be mixed up with all the other aspects of your financial history.

If your business gets into bad debt, then that will show up on your credit history.

To be on the safe side, it might make more sense to incorporate this aspect of your life and have separate finances from your business – this way your credit rating and your business’ credit rating remain separate.

It’s also important to see self employed credit cards as short term solutions.

Many credit cards for the self employed carry high interest rates, so if you can’t afford to pay off the balance at the end of the month, it’s likely you’ll be carrying over a lot of debt every month.

Self employed people may find it hard to get a long term credit solution, so it can be tempting to rely on a credit card or overdraft.

But, if you can manage it correctly and pay off the debts as early as possible, this could lead to an improved credit score, and in the long term, you could find yourself getting more favourable rates and credit limits to suit your self employed lifestyle.

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