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Credit cards for the self employed

Written by Tom Martin, Content editor

Edited by Florence Codjoe, Content Editor, 18 September 2020

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

If you're looking for credit cards for the self employed and you have been working for yourself for a while, then you shouldn't have a problem getting a credit card.

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If you run your own business, work for yourself, or are self employed and have a good credit rating, there are plenty of options for you to find a credit card that suits your needs. 

If you're a newly self employed freelancer, or have chosen a career change, then you may find your choice is more limited. This is also the case if have lost your job or been made redundant as a result of COVID-19, and you're applying for your first credit card.

That is because you will not be able to demonstrate regular income to the credit card provider when you make your application.

Do I need to tell my credit card provider if I am going self employed?

If you already have a credit card and you're planning to work for yourself, you don't necessarily need to tell your provider. However, it's a good idea to keep work and personal finances separate, and so it might be wise to have a credit card that you just use for your business. 

If you have a credit card and you are self employed and are starting to struggle financially as a result of the coronavirus pandemic, you can contact your credit card provider. They can help you manage your money – options include having a payment holiday while you get back on track financially. The sooner you contact them for help, the better.

How do I get a credit card for the self employed?

Self employment is widespread these days and most lenders do not discriminate against people who are freelance. It is possible to get a credit card for the self employed and one way to make sure you have access to greater choice is to shop around. 

When you look at the different options for a self employed credit card you can compare the deals available from a variety of credit card providers. 

Finding a credit card when you are newly self employed can be a little bit trickier than if you're working in a permanent full-time job but it is still possible.

How do I get a credit card when I am already self employed?

If you're already established as a self employed person, then make sure you keep your personal and business interests separate. This means that if you apply for credit, the health of your business will not be linked to your own personal credit card.

For example, credit card providers assess what the chances are of you not paying your credit card debt. If your business has a bad couple of months and you're using a personal credit card to balance the books, your own personal credit rating may be affected if you fall behind with repayments.

Plus there are other factors at work when credit card lenders decide whether or not to accept your credit card application.

If you have a regular cash flow, and you're not behind on your mortgage, rent and other payments, there's no reason why your application for a credit card would be turned down.

However, if your income is irregular, or you don't have a track record of working for yourself, then lenders might be more wary. This is especially the case if you have any missed payments on your credit score.

If that's the case, there are a number of things you can do to improve your credit score and enhance your chances of being approved for a self employed credit card.

Which are the best 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 aren't 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's important to have a good credit score and understand what your options and limitations are before applying for any kind of credit.

What are the steps to getting a credit card if you are 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're 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 an eligibility check, which doesn't show up as a search on your credit report. This is important because if you have too many searches it might appear as though you're desperate for money, something lenders will be wary of.

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're 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.

How can I improve my credit score and get a self employed credit card?

There are multiple things that could impact your credit score:

  • Whether you're 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're 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.

What if my self employed income is variable?

As a freelancer, you don't always have money coming in regularly. 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. However, 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 and can show you are 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.

How can I manage credit and debt with a self employed credit card?

In order to set up your own business, it's likely you will have to operate while in debt as you will 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. 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.

Things to consider before choosing a credit card

Be careful about choosing a credit card with a high interest rate. 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 and this could be costly.

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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