What to Know About Credit Cards for the Self-Employed in the UK

Are you wondering if you can get a credit card while self-employed? We’ve got the answers to your questions—keep reading to learn more!
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Did you know that more than one in ten people in the UK are self-employed? If you’ve recently become self-employed, you’re joining a part of the population that’s driven, inspired, and ready for a challenge.

One challenge that you might be looking forward to is getting a credit card as a self-employed person. In this blog, we’ll answer some common questions about getting a credit card when you’re self-employed, tell you what you can expect, and how you can improve your chances of being approved. Keep reading to learn more!

Is it Harder to Get a Credit Card if You’re Self-Employed?

Getting a credit card when you’re self-employed is often no harder than getting a credit card when you have a traditional employer-employee relationship. So what does impact your ability to get a credit card if you’re self-employed? Two factors that have a unique impact on your ability to get a credit card when you’re self employed include:

  1. Your work history: If you’re just entering self-employment, you may have a more difficult time getting approved for a credit card than you would if you’ve been self-employed for two or three years.
  2. Your income: Banks and credit card providers prefer a steady income, which could cause you some difficulty as a self-employed worker. They want to know that you can make your payments every month. If your income fluctuates throughout the year, it can make lenders nervous, even if your overall income is greater than what’s needed to qualify.

Keep in mind that not every bank or credit card provider is the same. Some may be willing to overlook months where your income is less due to your work’s seasonality. In general, you’ll have better luck getting a credit card while self-employed if you:

  • Have a great payment history and understand what affects your credit score.
  • Maintain a good credit-utilisation ratio, using 25% or less of your available credit before paying it off.
  • Maintain a low debt-to-income ratio.
  • Have a savings account that demonstrates your financial health.

Related read: Understanding credit utilisation 

Should I Tell My Credit Card Provider if I’m Going Self-Employed?

If you have an existing credit card, you might be wondering if you should tell your bank or credit card provider that you’re going self-employed. You don’t need to tell your bank that you’re going self-employed, but if you’re self-employed through a limited company, you may want to apply for a business credit card. Using the same credit card for both expense types could damage your credit score by using too much of your credit limit.

Should You Get a Credit Card if You’re Self-Employed?

Self-employment looks different for each person, so there’s no single answer to this question. Credit cards have lots of benefits, but they have potential drawbacks as well. Your circumstances as a self-employed worker will ultimately determine if you stand to benefit from getting a credit card. Let’s take a look at some of the key benefits and drawbacks:

Benefits of Getting a Credit Card When Self-Employed

  • Your purchases are protected: When you make a purchase that’s £100 or more, it’s automatically protected under Section 75 of the Consumer Credit Act. If your purchase is defective, isn’t delivered, or the seller goes out of business before fulfilling your purchase, your credit card company will refund your money.
  • Build credit: If you plan to apply for financing, such as a loan or mortgage, you’ll need a strong credit score. Fortunately, using a credit card wisely can help you improve your credit score and reach those goals.
  • Rewards: If you use your credit card wisely, you could earn rewards and points for your regular purchases. When every pound matters for your finances, rewards and points can be a welcome benefit to your regular spending habits.

Drawbacks of Self-Employed Credit Cards

  • A varying income can expose you to debt: If your income fluctuates from month to month, you’ll need to be careful not to use more than you can afford to pay back each month. Otherwise, you could find yourself going into debt and being charged costly interest.
  • Rejection is a risk: If you apply for a credit card and aren’t accepted, it can damage your credit score. To prevent this, use eligibility tools that only run a soft credit check to determine whether you’re likely to be accepted before you apply. 

Related read: What’s the difference between a hard credit check and a soft credit check? 

Credit Cards Can be a Valuable Tool When You’re Self-Employed

If you’re self-employed, getting a credit card is completely possible. With more and more people freelancing and turning their side-gigs into their main source of income, banks and credit card companies are getting used to working with people with similar financial situations.

If you’re just starting off with self-employment, you might have a harder time qualifying for a credit card, but that doesn’t mean you won’t qualify down the road. In the meantime, focus on paying your bills on time, paying off any existing debts, and consider getting a credit builder card.

About Pave

The Pave app is a tool that helps people across the UK improve their credit scores through education, bills monitoring, and direct credit building. To see for yourself why hundreds of thousands of Brits have downloaded Pave, head over to the App Store or Google Play to get started.