September 30th, 2013

How to Build Credit as a Self-Employed Freelancer


How to Build Credit as a Self-Employed Freelancer

**Today’s guest post is contributed by Carrie.**


Being your own boss has some great benefits, with one of the main ones being the freedom and flexibility to do with your time as you please. However, with that freedom comes a big obstacle — it’s difficult to build credit.

This is something I discovered after I quit my job in May 2013 and had to rely on my own income for stability, paying the bills, and of course, building credit.

Thankfully, you can still build credit as a self-employed freelancer by using these five unconventional strategies.

1. Collect proof to verify self-employment income

One of the main reasons it’s hard to obtain a credit card or loan as a freelancer is because it’s not easy to verify your income. It’s not like the financial institution can pull records of your W-2’s, because self-employment income is a lot more inconsistent.

However, if you’ve been freelancing for more than a year, you can use your past tax returns as a way to verify your annual income.

Another way to collect proof of self-employment income is to gather any bank statements and investment or savings account balances. If your business is doing well, or if you’re a smart saver, having a good chunk of money lying around can be used as collateral, and prove that you’re a solid candidate for loaning money to.

2. Authenticate your business by incorporating

If you’re interested in giving yourself a pay stub like a regular employee, you can incorporate or become an LLC. This will prove you’re serious about your business, and show that you’re running a legitimate business.

You’ll be able to pay yourself as an employee, and it will look as if you’re working for any other type of company to the lenders. Plus you can potentially qualify for certain tax benefits, so incorporating is worth considering.

3. Take out credit in the company’s name

After setting up the legal identity of your business, it’s time to open bank accounts, credit with vendors, and even credit cards under the business’ name. Just like personal credit and bank accounts, any financial information you have will be reported to the credit bureaus.

So if you’re trying to establish credit as a self-employed business owner, there are major advantages to opening business credit versus credit under your personal name. You can even take advantage of promotional interest rates to pay for any business expenses. It’s a win-win to help with cash flow and your financial history.

Having no credit is better than having bad credit, so if your business is new you can start from scratch to build a solid credit history.

4. Use unconventional methods

You and WilliamPaid, you can build credit just by paying your rent, utilities, cell phone, insurance, and other bills. These services have made it easy (and nearly free) for you to leverage your monthly bills to prove you’re a solid candidate for loans and other financial products.

Using debt to build credit is a thing of the past, so don’t be afraid to buck the trends and find your own methods for proof of income or payment history.

5. Keep your personal credit up-to-date

As a sole-proprietor (even one that’s an LLC), your personal credit history is tied to that of your business and vice-versa. So be sure to keep your report clean, check for errors regularly, and pay your bills on time.

Your credit score is made up of five components:

  • Payment history — 35%
  • Amounts owed — 30%
  • How long you’ve had credit — 15%
  • New credit — 10%
  • Mix of credit products — 10%

As long as you keep each those top components in mind, you’ll be able to improve your personal and business credit score with very little issues.

If a loan officer sees you have a solid history of making payments on time and are able to control the amount of debt you owe, they generally will have no problem working with you and your business.

What’s another way you can build credit as a freelancer?


Carrie Smith is the owner and editor of Careful Cents, a blog that specializes in helping serious solopreneurs and full-time freelancers earn more money in less time through systems and financial organization. She also writes for The Huffington Post, AllBusiness Experts and several other business websites. You can find her on Twitter @carefulcents.

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September 9th, 2013

The Alternative Credit Spectrum

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Having a poor credit score can sometimes feel like being trapped in quicksand-- the harder you try to escape, the further high interest rates and punitive charges pull you back down. But everyone needs access to credit and if you do need funding, there are always alternatives. The terms may not be pretty or available to everyone, but below are some options that may improve your credit health, or help fund you until you can.

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August 17th, 2013

Infographic: Back-to-School Financial Tool Kit

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Ready for another infographic? This week we thought we'd share more financial facts-- like we did in our debunking credit myths infographic. Here are some helpful tips to keep college students financially savvy.

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August 5th, 2013

Introducing Credit to Children… Is it Wise?

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Even if credit is a subject discussed in high school, it’s most effectively taught by hands-on experience when there’s no fear of doing permanent damage. A wise parent will take the initiative to teach their children about the value of money and the importance of credit while they’re still young. The goal is to express to children how valuable credit is to their future and to help them start building strong financial skills prior to leaving for college.

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July 21st, 2013

Infographic: Credit Myths Debunked

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We are back with our infographic series! This week, we thought we’d do something a little different, so instead of crunching numbers we are debunking some common credit score myths. Scroll down and see how well you understand what’s impacting your score.

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June 7th, 2013

Link Roundup: 5 Things College Grads Need to Know About Credit

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5 Things College Grads Need to Know About Credit "With many students graduating from college, there are thousands of individuals venturing out into the “real” world for the first time. Graduation often marks the first time that young adults begin to make their own money decisions, and begin to understand the consequences of their financial choices. As graduates begin the next phase of their lives, here are 5 things they need to know about credit:"Financial Highway

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January 8th, 2013

Your 2013 Credit Checklist

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Happy New Year from the Credit Karma team! By now you’ve probably settled into a few resolutions, some of them maybe even financial (like the Debt Movement, perhaps?). To help you kickstart your credit in 2013, we thought we’d give you a quick checklist. Here’s how to make sure your credit is in tip-top shape this year.

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July 5th, 2012

Three Bad Habits to Avoid When It Comes To Your Credit

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It’s hard to kick bad habits, whether it’s something simple like biting your nails, or something with larger implications, like impulse shopping. No matter the bad habit, getting rid of it is a task in itself. If you consider the consequences of certain bad habits on your credit and financial life, it may motivate you to never give into their temptation. Here are just three bad habits that are easy to form, but hard to break.

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February 21st, 2012

3 Things You Might Not Know About Credit Scores

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If credit scores were a subject in school, we here at Credit Karma would ace every test. We spend our days reading up on new credit legislation, updating you on the new credit score rules, and obsessing over credit card rewards. When it comes to writing about credit scores on the Credit Karma Blog, we focus on clarifying credit misunderstandings.

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December 19th, 2011

From Our Facebook Community: How to Deal with Old Debts

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Credit Karma’s Facebook community members always come up with great credit questions. Sometimes they’re so good, we share the answers here on the Credit Karma blog. This time, the question is about debt, something many of us can relate to.

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