Credit cards for the self-employed and sole-traders
When applying for a credit card, you will have to provide details of your salary. This might be a bit trickier to do when you’re self-employed and your earnings fluctuate.
Key takeaways
Lenders perceive self-employed people as higher-risk borrowers due to fluctuating income
A robust credit score helps, but there are options for those with less-than-ideal credit histories
For lower credit scores, consider credit builder cards (however, these do come with higher interest rates, lower limits)
Missing payments leads to fees, higher rates, and credit report damage
Being self-employed in the UK is synonymous with being your own boss. You could be a sole trader, selling goods and services, or running your own limited company. Regardless of whether HMRC has been informed, your status as a self-employed individual means you are essentially running a business.
Can I get a credit card if I am self-employed?
For the self-employed, obtaining a credit card is certainly possible, but it's not without its hurdles. Lenders often perceive self-employed individuals as higher-risk borrowers due to potentially unstable income streams, which can make the approval process more stringent compared to traditionally employed applicants.
MoneySuperMarket data from September 2024 shows that 78% of credit card enquiries from self-employed individuals returned pre-approved credit card offers, whereby acceptance is guaranteed and both the interest rate and 0% period (if applicable) is confirmed upfront.
Our data also shows that the average representative APR shown to applicants doesn't vastly differ if you are self-employed - the average of 28.8% is just 0.2% higher than those in regular employment.
Preparing for your credit card application
Before diving into a credit card application, self-employed individuals should consider several factors:
Fluctuating finances: Lenders scrutinize your income consistency and ability to make regular repayments.
New to self-employment: Without a solid business history, predicting income becomes challenging for both you and the lender.
Debt: It is normal for businesspeople to take out loans when starting out, however, this means you’ll have money you’re in the process of paying back. Because you’re already borrowing money from someone else this can also make the lender more worried about if you can keep up with repayments.
Credit score: A robust credit score is beneficial for credit card approval. However, there are specialist options for those with less-than-ideal credit histories.
Documentation required for self-employed applicants
When you apply for any credit card, you’ll need to provide proof of identity, address and income. You’ll still need to supply these details for your self-employed credit card, alongside these additional documents:
Proof of income: Tax returns or profit and loss statements from the past two years are crucial.
Savings: Savings can reassure lenders of your financial management capabilities.
Business details: Information like your Companies' House number and proof of UK-based operations may be required.
What are the most popular types of credit card for the self-employed?
According to MoneySuperMarket enquiry data from September 2024, balance transfer credit cards are the most popular type of credit card among self-employed people.
A balance transfer card allows you to move an outstanding balance from one or more existing credit cards to a new card. Find out more with our in-depth balance transfer guide.
Card type | Percentage of MoneySuperMarket enquiries |
|---|---|
Balance Transfer | 41% |
Purchase | 23% |
Balance Transfer and Purchase | 16% |
Credit Builder | 14% |
Reward | 4% |
Travel Credit Card | 2% |
Selecting the right card for your needs
The ideal credit card for a self-employed individual depends on their specific financial situation and goals:
Debt consolidation: A balance transfer card can be advantageous for managing existing debts, but be mindful of fees and the rate increase after the introductory period.
Regular spending: Rewards credit cards offer benefits like cashback and airmiles, but they require disciplined financial management.
Credit solutions for start-up ventures
Start-up businesses can access credit cards, though the absence of a trading history may increase the perceived risk for lenders, potentially affecting the terms offered.
Building a strong credit profile
Improving your credit score is achievable through consistent financial practices:
Electoral roll registration: This simple step can enhance your credit score.
Timely payments: Keeping up with bill payments is a testament to your financial reliability.
Account management: Closing old accounts can positively impact your credit rating.
Educational resources: Our guide on how to improve your credit score offers comprehensive advice.
The impact of missed payments
You should always strive to make the minimum credit card payment. However, missing a credit card payment can have serious repercussions, including additional fees, increased interest rates, and long-term credit report damage.
The pros and cons of credit cards for the self-employed
Credit cards can be a powerful tool for the self-employed, offering benefits such as the ability to spread costs and protect your purchases. They can also help boost your credit score. However, they may not be suitable for everyone, especially those who struggle with disciplined repayments.
Exploring alternatives
For those wary of credit cards, alternatives like loans and overdrafts offer different advantages and risks.
Other useful guides
If you want to learn more about credit cards, MoneySuperMarket has a range of guides you can read:
Compare credit cards with MoneySuperMarket
Our comparison tool helps you find the right credit card based on various factors. Remember, we are a credit broker, not a lender, and our service comes at no cost to you.
MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead, we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers.
