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, but shouldn’t stop a successful application
Key takeaways
Lenders may 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
Credit builder cards have higher interest rates and lower credit limits but might be preferable if you have a low credit score
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 fromthe past 3 months shows that 66%[1] 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 28.4%[2] is very similar to those in regular employment - 28.3%[3].
What should I consider before applying for a self-employed credit card?
Before starting a credit card application, self-employed individuals should consider several factors. You might not be able to address every consideration immediately, but understanding ways to improve your chances of approval can be helpful:
Fluctuating finances: Lenders scrutinise 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, because you’re already borrowing, it can make the potential lender more worried about whether you can keep up with card repayments too
Credit score: A robust credit score is beneficial for credit card approval, but there are specialist options – such as a credit builder credit card – for those with less-than-ideal credit histories
What documentation is required to apply for a self-employed credit card?
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 may be needed
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 the past 3 months, balance transfer credit cards are the most popular type of credit card among self-employed people, representing 39%[4] of enquiries
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 | 39%[4] |
Purchase | 24%[4] |
Balance Transfer and Purchase | 16%[4] |
Credit Builder | 14%[4] |
Reward | 5%[4] |
Travel Credit Card | 2%[4] |
What credit card should I get if I’m self-employed?
The ideal credit card for a self-employed individual depends on your specific financial situation and goals. Here are a few examples:
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
Spreading the cost of a one-off purchase: If you’re eyeing an expensive item and don’t want to pay for it all up front, a 0% interest purchase card allows you to buy it on credit and then effectively spread the payments over the 0% interest period at no additional cost
Building your credit score: A credit builder credit card will offer a lower credit limit and higher interest rates, but as long as you clear your balance in full every month you can avoid fees and charges and help boost your credit rating
How can I build my credit score if I’m self-employed?
Improving your credit score won’t just help in getting a credit card, but can lead to better deals in all forms of borrowing, such as loans and mortgages. It’s achievable through consistent financial practices, including:
Electoral roll registration: This simple step can enhance your credit score
Timely payments: Keeping up with bill payments helps prove you are financially reliable
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
Our guide on how to improve your credit score offers more comprehensive advice.
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.
Advantages
Flexible cash flow: A personal credit card can provide a financial cushion, helping you manage personal expenses during periods of irregular income
Improved credit rating: Consistently using and repaying a credit card on time can improve your credit score, which may be helpful when applying for personal or business loans
Emergency spending: A personal credit card can be a handy backup for unexpected expenses, especially when savings are stretched
Disadvantages
Increased debt risk: Irregular income makes it easy to rely on a credit card too often, potentially leading to unmanageable debt if not carefully managed
High interest charges: If you’re unable to pay the full balance each month, the interest on credit cards can quickly add up, impacting your finances
Blurring personal and business finances: Using a personal credit card for business-related expenses can make it harder to separate personal and business finances, which could lead to complications during tax returns
What are the alternatives to a self-employed credit card?
Overdraft: An authorised overdraft on your current account can provide flexible, short-term borrowing. However, overdraft limits are often lower than credit card limits, and interest rates or daily fees can be high if you go over your limit
Personal loan: A personal loan offers a lump sum with fixed monthly repayments, which can help with budgeting. Unlike a credit card, you can’t typically avoid interest repayments on a loan, making it better for planned expenses rather than covering fluctuating cash flow
Business credit card: Designed specifically for business use, these cards help you keep personal and professional expenses separate. They often come with features like higher limits and business-focused rewards, but approval criteria can be stricter for the self-employed
Savings buffer: Building and relying on a savings buffer can be the most cost-effective way to handle expenses. While it avoids debt entirely, it requires discipline and might take time to accumulate enough funds to cover larger needs.
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. We’ll ask you a few quick questions and our eligibility checker will search the market to find cards that could be available to you along with your chances of approval. Searching in this way reduces the likelihood of being rejected for a credit card and damaging your credit rating.
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.
