Can I get a credit card if I’m self employed?

credit-card-handGetting credit or loans when you are self employed can be difficult. Anyone can call themselves self employed, even if they don’t make any money, so banks are more likely to regard you with suspicion if you are self employed or a “sole proprietor” (another term that means you’re on your own). Banks may want you to prove that you really make money and will be able to pay off your debts.

However, the good news is that banks and other credit card companies are more willing to approve self-employed people for credit cards than for other loans such as car loans or mortgages. Perhaps it’s because of the higher interest rates they can charge on credit cards, or the fact that they won’t be left with a house worth hundreds of thousands of dollars if you default. Whatever the reason, banks are more lenient on self-employed individuals when it comes to credit cards.

But it’s not easy

That doesn’t mean it’s easy. You are more likely to be approved as a self-employed individual if:

  • You have a good personal credit history.
  • You actually make money and have a track record as a business.

Let’s look at each of those factors:

First, you should understand that whether it’s a personal or small business credit card that you want, your personal credit history will be checked to see how you’ve handled credit in the past. Having successfully handled credit in the past is probably the most important factor for sole proprietors when it comes to being approved for a credit card, even more so than proof of income. If you have no credit history or, worse, a bad history of using credit, things will be tougher for you.

Second, having an income is good. If your credit history is not great, or is completely non-existent, you as a self-employed person are going to have to jump through hoops to get approved for a card. That means showing tax returns or other financial data that proves you are a viable business, not a self proprietor in name only.

Personal credit card or business credit card?

In most cases it really doesn’t matter whether you choose a regular consumer credit card or a card labeled as being for “small business.” Either way, a self-employed person is almost always going to be approved or unapproved based on his or her personal credit history. Despite many cards being marketed to small businesses, most will still have you apply as a single person (not as a company) and you will be on the hook for the debt. (You won’t be able to escape your business credit card debt if your business fails, and if you don’t pay it will end up on your personal credit history.)

So, don’t feel the need to get a small business credit card just because you are in business for yourself. Check out all the offers on the table and choose the card that seems right for you in terms of interest rates and rewards. However, whether you choose a consumer or business credit card, make sure that once you’re approved you use the card only for business purchases — it’s good for record-keeping, and it keeps a self-employed person from letting work purchases blur over into personal purchases, and vice versa.