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Difficult to get credit: the difficulties of the self-employed worker

If you are self-employed, you must recognize the difficult to get credit.

Difficult to get credit: the difficulties of the self-employed worker
Source: Google

Approximately 6.1% of employed Americans were self-employed in 2019, but the number of self-employed workers may grow faster in certain occupations than in others. By 2026, the Bureau of Labor Statistics predicts that self-employment will increase by nearly 8%. Some self-employed workers receive higher wages and more flexibility. Dentists, for example, are often self-employed, but earned an average annual salary of $159,200 in 2019.

Appraisers and real estate appraisers, another profession in which self-employment is common, earned an average annual salary of $57,010 in 2019. Despite high wages and job security in some industries, there is one area that the self-employed can struggle with – solvency. If you are working for yourself, you may need to overcome additional obstacles and have extensive work experience to obtain a mortgage, car loan, or qualify for another required line of credit.

The importance of the self-employed for creditors

Self-employment does not directly affect your creditworthiness. However, some lenders may be wary of loans for self-employed applicants, especially if you have recently become self-employed.

Lenders consider the following criteria when applying for a mortgage or other type of loan:

  • your recipe
  • debt-revenue ratio
  • credit score
  • Active
  • employment status

Creditors will usually confirm your income by reviewing the pay stubs and tax returns you have submitted.

You can check your creditworthiness with the credit bureaus by doing a thorough study of your credit report, and they can confirm your debt to income ratio by comparing your income to the debt you currently have. Lenders can also verify what assets you own by receiving copies of your bank statements or other evidence of your assets.

The last factor – your employment status – can be more difficult for lenders to assess if you are self-employed and manage multiple clients or jobs. After all, generating unpredictable revenue streams from multiple sources is very different from receiving a single paycheck from an employer who pays you a salary or a flat hourly rate. If your income fluctuates or if your self-employed income is seasonal, this can be seen as less stable and somewhat risky for lenders, better for you overall.

Most lenders will ask about your employment status in your loan application. However, your self-employed status may already be listed with credit bureaus. Either way, being dishonest in a loan application is a surefire way to ensure you get turned down. Read on and understand the difficult to get credit.

What else can you do to get credit approval as a self-employed person

When you apply for a mortgage and are self-employed, you generally need to provide more evidence of a reliable source of income than the average person. Lenders look for evidence of steady income, the location and nature of your work, the strength of your business, and the long-term viability of your business.

To prove that your self-employed status does not affect your ability to repay the loan, you will need to provide the following additional information: Two years of income tax return. Two years of income tax return. Proof of self-employment, if necessary with a list of clients. Proof of your company’s status, including commercial insurance or commercial license

Applying for a different line of credit, such as a credit card or car loan, is significantly less hassle than applying for a mortgage – whether you’re self-employed or not.

Most other types of credit require you to obtain a Complete loan form which includes your personal information, social security number, information about other debts such as house payments and details of your employment status. If your creditworthiness and income are high enough, you can qualify for other types of credit without major obstacles. Read on and understand the difficult to get credit.

Ways to get credit being self-employed

If you are self-employed and want to qualify for the loan you need, there are several steps you can take to prepare yourself for success. Consider doing the following immediately.

  • Identify where your credit is

You can’t recycle your balance if you don’t even know where it is. To start the process, it is imperative to check your credit score to see if it needs to be fixed. Fortunately, there are a few ways to check your FICO credit score online for free.

  • Apply for credit with a guarantor

If your creditworthiness or income is not sufficient to qualify for a loan, you can also apply for a loan with a guarantor. The advantage of having a guarantee is that you can trust your solid credibility and positive credit history to increase your chances of approval.

However, if you choose this option, please note that, in case of late payment, your guarantor will be jointly and severally liable for repayment of the loan.

  • Try to get credit directly from your bank or credit union

If you have a long-standing relationship with a local credit union or bank, they already have a general understanding of how you handle money.

With that confidence, she can be ready to offer you a line of credit where other creditors are not. This is especially true if you have had a deposit account relationship with the institution for at least several years.

Either way, it’s always a good idea to check with your existing bank or credit union when applying for a mortgage, car loan, or other line of credit.

  • Reduce the debt/income ratio on your behalf

The debt-to-income ratio (DTI) is an important factor that lenders consider when applying for a mortgage or other type of loan. This factor represents the amount of debt you owe compared to your income and is expressed as a percentage.

If you have gross income of $6,000 per month and fixed expenses of $3,000 per month; Your DTI rate is 50%.

A very high DTI rate can make it difficult for a self-employed person to qualify for a mortgage or other line of credit. For mortgage qualifications, most lenders prefer to lend money to consumers at a DTI rate of 43% or less. Read on and understand the difficult to get credit

  • Identify if there are any errors on your credit report
Difficult to get credit: the difficulties of the self-employed worker
Source: Google

To keep your credibility as good as possible, check your credit reports regularly. You can get your credit reports from all three credit reporting agencies once every 12 months for free at

If you find any errors on your credit report, take steps to correct them immediately. Fixing bugs in your report can give your score the real boost it needs.

  • Separate your business money from your personal money

Separating personal and business funds is helpful when filing tax returns, but it can also help reduce your liability for certain debts. Suppose you have large personal debts.

If your business is structured as a corporation or LLC and you need a business loan, separating your business funds from your personal funds can make your loan application look cheaper to lenders.

As a separate matter, start building your business’ credibility separate from your personal credibility from the start. Setting up corporate bank accounts and signing a corporate credit card can help you manage your two cash deposits separately.

  • Offer a larger entry

Some lenders have restricted mortgage approval requirements and some even require a 20% down payment for home loans. You also have a better chance of getting a car loan on the best terms and conditions, with more money, especially on new cars that depreciate quickly.

Try to get 20% off a house or car when making your purchase. As a bonus, a 20% discount on your home purchase will help you avoid paying private mortgage insurance.


If you are self-employed and fear that your employment situation will affect your chances of getting a loan, you shouldn’t. Instead, focus your time and energy on creating a reliable source of income for self-employment and building your creditworthiness.

Once your business is established and you’ve been self-employed for several years, the status of your job doesn’t matter as much. If you keep your income high, your DTI low, and your debt positive, you’re more likely to get approved for a loan.

Sam Nascimento

Graduated in law Specialist in economics, investment and personal finance. Its focus is to change people's financial lives.