Does being self-employed affect your credit rating?

Self-employment doesn’t affect your credit rating on its own. Fluctuations in cashflow, which many self-employed people experience, can affect your credit score. This is especially true if it leads to you missing bills or repayment plans.

5 min read
Happy man at home, using laptop and looking at credit card

How does a business credit card affect personal credit? 

There are a few different ways in which a business credit card can affect your personal credit. Just remember that these are all subject to the card you choose and the lender’s requirements.

Hard check on a personal credit report

When you apply for a business credit card as a small business, it’s highly likely that the lender will check your personal credit score as well as your business one. This is because they need to be certain that you can afford the repayments. Your business credit history may not give them the reassurance they need if you haven’t had the chance to build it up yet.

The hard check when you apply may cause your credit score to dip, but only temporarily – as long as you don’t apply for lots of forms of credit in quick succession.

Personal guarantee

If your business doesn’t have a long trading or credit history, the lender may request that you sign a personal guarantee. Basically, you agree to repay the business credit card if your company falls behind. It’s a legally binding agreement, so think carefully before signing the terms.

Your credit score could be damaged if you don’t make the repayments on time, every time. You could also incur late fines.

Credit utilisation ratio

If you’ve taken out a business credit card with a personal guarantee, the credit limit on that card may count towards your own credit utilisation ratio. This is how much credit you’ve taken out compared to how much is available to you. The more credit you use on your business credit card, the less you might be able to access in your personal life. This could be something to think about if you’re looking to take out a loan, mortgage, or personal credit card soon.

Do business credit cards build credit? 

Business credit cards can help you build a credit history for your business. You will need to:

  • pay your credit card bills on time, every time
  • stay within 30% of your credit limit
  • manage your cash flow and employee purchases

Doing these things will show future lenders that your business is responsible with managing credit and hopefully allow you to access more credit in the future. But failing to pay your bills on time or exceeding your credit limit will have the opposite effect. You could end up damaging your business’s credit score and incur late fines and fees.

Is getting a credit card a good idea if I’m self-employed? 

Whether getting a credit card is a good idea when you’re self-employed depends on your personal circumstances. You’ll need to weigh up the pros and cons to help you decide.

If you struggle to manage credit or are in debt already, you may want to wait to get a business credit card until you’re on top of your finances. However, if you are generally good with managing credit and are looking to build your company’s credit score, a business credit card may be a good option for you.

How can I avoid negative marks on my credit report? 

  • don’t apply for too many products quickly – this can make lenders think that you’re desperate for cash. Use an eligibility checker before you apply, with no impact on your credit score
  • remove old financial ties from your credit report – especially if they have a bad credit score, which could impact how lenders see you. You can do this by contacting the relevant credit reference agency on the account has been paid in full
  • make sure you keep track of any bills or credit commitment - you’ll need to pay them on time each month, otherwise you risk a negative footprint being left on your credit history
  • register with the three main credit reference agencies: Experian, Equifax and TransUnion. Once you’ve done this, check your credit history for any mistakes. You can correct errors by contacting the credit agency directly
  • keep an eye on your credit score – you can check your Equifax report for free, for life with our member-only platform, CredAbility. This will enable you to correct any mistakes that crop up straight away
  • register to vote by getting on the electoral roll. This is a quick and easy way that you can prove who you are to lenders

How to get a business credit card if you are self-employed 

Follow these three steps to get a business credit card if you are self-employed.

1. Do you research

You can compare business credit cards directly by looking at the lenders themselves. But it’s also a good idea to check comparison websites and brokers for deals you may not have found yourself.

Tip: Focus on lenders who offer cards specifically for self-employed people to increase your chances of getting accepted.

2. Look after your credit history

You want to make sure your credit history is in the best possible shape before you apply. If you have a track record of missing payments, for example, you could set up a direct debit. Just make sure that there is enough money in your account to cover it.

Tip: Set up a separate bills account so you don’t have to worry about not having enough money in your personal bank account.

3. Use an eligibility checker

Also known as a soft search tool, an eligibility checker will look at your details to see if you’re likely to be offered the deal you want. It doesn’t leave a footprint on your credit history, so your credit score won’t be affected.

Tip: If you keep getting declined from deals that you’re interested in, it may be worth building your credit history first.

Disclaimer: All information and links are correct at the time of publishing.

Fiona Peake, Personal Finance Writer

Fiona Peake

Personal Finance Writer

Fiona is a personal finance writer with over 7 years’ experience writing for a broad range of industries before joining Ocean in 2021. She uses her wealth of experience to turn the overwhelming aspects of finance into articles that are easy to understand.