How to Build Credit When You Work as a Freelancer

How to Build Credit When You Work as a Freelancer
GUIDE
David Andrew
By: David Andrew
Posted: August 23, 2013
BadCredit.org's popular "How-To" series is for those who seek to improve, rebuild or better understand their subprime credit rating.

Working for yourself as a freelancer has many benefits: flexible hours, the freedom of being your own boss and the ability to work in a field you’re passionate about.

However, one of the problems with freelancing is it makes it a bit harder to build credit.

You can still earn a decent credit rating as a freelancer, as long as you follow a few important steps.

1. Collect as much proof of income as possible.

One of the reasons why it’s hard to get a credit card or loan as a freelancer is because it’s difficult to verify your income.

When you are an employee and have a set salary, you can just provide a copy of your pay stub. When you freelance, you can’t do that, especially if your income fluctuates each week.

If you’ve been freelancing for more than a year, you can try using your old tax return to show your past annual income.

Lenders may also be willing to consider reviewing the statements of your bank account to see that you have money saved up and regularly coming in.

2. Consider starting an LLC or corporation for legitimacy.

One way to give yourself a pay stub is by setting up your freelancing business as an LLC or a corporation.

Many freelancers work as a sole proprietorship because this is so easy to do. You’ll automatically be working as a sole proprietorship when you start earning freelancing income.

Making the time to set up an LLC or corporation makes your business look more legitimate.

You’ll be able to pay yourself a salary as an employee and this will look the same to a lender as if you were working for something else.

There are also potential tax benefits for making this move, so it’s worth considering.

 

“Building credit as a freelancer is

a challenge, but it can be handled.”

3. Get help from a co-signer.

If your income prevents you from getting a card or loan on your own, you can try asking a family member or close friend to help.

If the co-signer is earning a stable, verifiable income, lenders will be more willing to give you a credit card or loan despite the challenges you face as a freelancer.

Just be sure to always make the payments on your joint account on time because missing payments will hurt the other person’s credit score as badly as your own.

4. Set up a secured card.

Another way to start building credit as a freelancer is with a secured credit card.

To use one of these cards, you need to secure the account with a deposit equal to the credit limit. This way, the lender doesn’t have any risk by giving you a credit card and your job as a freelancer won’t matter.

A secured credit card still builds up your credit score, so if you manage the account properly, you’ll soon be able to qualify for something better.

5. Keep building good credit habits.

Ultimately, lenders will be most interested in your credit rating.

If you maintain good credit habits with whatever accounts you can set up as a new freelancer, eventually your job will stop being an issue for credit.

Lenders will see you’re able to manage your accounts responsibly and make enough money to pay your bills, so they will be more willing to extend you credit in the future.

Building credit as a freelancer is a bit of a challenge, but it’s one that can be handled without too much trouble.

Use this advice to get a good start and soon you’ll be able to get credit as easily as any regular employee.

Photo source: jobstock.com.