How to Improve Personal Credit in a Self-Employed World

Every person who is self-employed has their own business. It may not be structured with corporate credit cards, logos and personalized stationary, but it is a business. Being self-employed, however, can make it very difficult to get a loan.

Your personal finances are intertwined with business expenses and it can be difficult to show a bank or financial institution how much money you made during the last year without revealing all your costs and expenses. If you are working in the gig economy it can be even more confusing as payment for work is usually made through PayPal or other electronic bill paying services and often isn’t listed as wages.

Dealing with the newfangled gig economy

Most traditional lending institutions have clear cut and easily definable requirements for credit, and many workers who don’t bring home an actual, physical paycheck cannot qualify for loans or personal credit. Banks want to see a few months’ worth of check stubs to qualify you to borrow money. When your ‘check stubs’ are dozens or hundreds of entries in an online debit account, it can lead to you not getting a loan.

Unfortunately, there is no easy solution to this. No company has yet created a loan process for self-employed gig workers to qualify for a loan with the same ease as someone working in a traditional job. A few ways to make the process easier are listed below:

  • Pay yourself. The first thing a self-employed worker should do is to set up an account strictly for business. Money is deposited to the account for work received and then disbursed (as a wage) to your personal account. If the only thing on your business accounts are business expenses, it becomes easier to show this to the bank or financial institution.
  • Don’t mix personal and business finances. If you are paying yourself from your business account, don’t use it to pay bills unless they are directly related to your business. Paying to drink coffee while doing online research is not directly related to your business. Keep them separate.
  • Keep your credit score in decent shape. Although this can be easier said than done, your credit score is a very important and should be maintained. One of the real problems with being self-employed is that when there is no work, there is no work. You don’t get paid to sit at the office and drink coffee. Although this tends to make self-employed people self-starting for drumming up business, it will cause gaps in your income.
  • Keep concise records. Moneys received and disbursed are just part of what a bank or financial institution will want to look at. Taxes, expenses, fees and other payments are as important and should be recorded with diligence and care.

Although separating and tracking your gig wages will add to the time you spend working, it can be disheartening because you won’t get paid for it. Even though that is part of being self-employed, it can be tempting to skip it or gloss over it. Don’t. Like any other business, your finances and how you take care of them can have massive repercussions when trying to take out a loan.

It is sometimes possible to get personal loans with no credit, but they are still going to want to see wages, taxes, business expenses and other moneys coming in and being disbursed. By keeping accurate records, it makes the entire process, not just easier, but possible.