Are you curious about ways to build credit as a freelancer? If so, you're not alone. Building credit is essential to buying a house, a car and getting other types of financing on your own. But if you work for yourself, getting your first credit account can be tricky. Fortunately, there are many ways to get your foot in the door with creditors. Here are seven ways to build credit when you work as a freelancer.
Keeping accurate financial records is one of the best ways to build credit as a freelancer. Employees receive a paycheck stub from their employers, which is proof of income. As a freelancer, you need to keep bank statements and copies of checks from clients to verify a steady source of income.
In addition to keeping accurate financial records, you'll need to file income taxes each year. As a freelancer, many lenders and creditors require at least two years of tax returns before they'll approve your application for credit. Tax returns can help you qualify for financing when you don't receive checks from an employer.
After working as a freelancer for two years, apply for a secured credit card through your bank or credit union. These credit cards are easier to get with no credit history. You are required to pay a security deposit, which can range from $200-$500. There may also be maintenance fees and a set up fee with a secured credit card. However, if you make timely payments, the credit card company may switch your account to an unsecured one and refund your initial deposit.
Another option is getting a secured loan through a bank. You can use any personal property as collateral, such as a vehicle title, electronics or jewelry. It doesn't have to be a large loan. With a loan in your name, the bank will send regular updates to the credit bureaus, which can add points to your credit score.
As an adult, you probably want to get a loan on your own merit. But as a freelancer trying to establish credit, you're better off with a cosigner. Speak with your parents, your spouse or a sibling. Cosigning is risky for the other person, so make sure that you make timely payments or else you’ll damage their credit rating.
To build credit as a freelancer, it's important that you pay bills on time. Timeliness makes up 35% of your credit score. And if you develop a routine of paying bills late – or not at all – future creditors may reject your loan or credit card applications. Open statements as they arrive in the mail, and set up payment alerts to remember due dates.
It's important that you’re patient while building credit. It can take anywhere between 12 and 24 months to establish a solid credit history from scratch. Also, do your homework and research other ways to increase your credit score. For example, you should keep debt to a minimum, limit your number of credit inquiries and diversify your credit.
Establishing credit as a freelancer is possible, as long as you know how to proceed. And once you build a strong credit history, it'll be easier to qualify for financing, plus you might be eligible for the best rates. What are other ways to build credit as a freelancer?
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