The Freelancer’s Guide to Building Credit

The 9 to 5 grind is quickly becoming a thing of the past. According to the Freelancer’s Union, a Brooklyn, N.Y.-based organization, nearly 42 million Americans have gone rogue, either due to the loss of a full-time job or the desire for a flexible lifestyle. That’s good news for employers who’d rather not pay for health care and other key benefits, and for Americans who grabbed onto a life raft when the recession hit.

Still, the perks of self-employment come with their downsides. Most freelancers go without benefits, including retirement plans, and because the pay itself is unsteady, they often to turn to plastic for help. While it’s fine to indulge and charge now and then, the trouble begins when freelancers rely on their card to get by, which many of them often do. And as any finance expert will tell you, that’s a recipe for debt and other disasters.

No matter what your employment situation is, it’s important to stay on top of your credit. One way to do that is to check your credit using’s free Credit Report Card, which will give you your credit scores and a summary of your credit report once a month. We turned to Gerri Detweiler and Barry Paperno, two experts at, for more on how freelancers can handle unique situations and keep their credit in good standing.

Never Miss a Payment

Whether you file a 1099 or W-2, you should always strive to make your credit card payments on time.

“Your payment history accounts for about a third of your credit score,” warns Detweiler, so “one late payment can drop your credit score dramatically, especially if you’ve always paid on time. Doing everything you can to make sure your minimum payments are paid on time is important.”

Adds Paperno: “A good method of staying up to date is to only charge what you can afford to pay back that same month, and make multiple payments according to the cash flow each month, if necessary. If the income stream is rather sporadic, making multiple small payments during the month when it’s convenient can be better than gathering the money throughout the month and waiting until just before the due date to pay.”

Automatic bill pay is one way to go about this, but if you truly feel like you’re in over your head, consider reaching out to a non-profit credit counseling agency for help.

“They may be able to help you with your budget and with reduced payments on your credit cards if needed,” Detweiler says. You might even realize you don’t need a card.

For those who have yet to open a card but know their cash-flow is unsteady, be patient.

“[Waiting to use a card] will force you to really think about what you are spending your money on,” says Detweiler — not a bad idea for those on a budget.

Looking Good to Lenders

Among the trickiest things about being a freelancer is lacking the almighty pay stub. You’d think it wouldn’t matter since you’re still being paid, but most card issuers and credit lenders ask to see one. So what should you show them instead?

One solution is to set up a company (LLC, S corp., etc.), says Detweiler. That way you can legitimately list the company as your employer, and state your income as you normally would.

“It probably won’t be verified for a credit application but you don’t want to vastly overstate it, as that is fraud and could possibly come back to haunt you if you end up in bankruptcy,” she says.

Dealing with landlords can also be tricky. Since you won’t have the pay stub as proof of employment, “a tax return might have to suffice,” says Detweiler, or you might want to offer a larger security deposit upfront. In other words, get ready to budget.

Dealing with Credit Bureaus

Though the pay is unsteady, the good news about being a freelancer is that you don’t have to report that to the credit bureaus. So even if you went rogue after a job loss, the bureaus will never have know, and it won’t hurt your score.

“While lenders report the name of a consumer’s employer along with their other credit info each month, there’s no serious reporting of employment info or dates of employment,” says Paperno. “What little employment-related info there is on a credit report is rarely up to date. It just might be that the only value in having the name of the employer on the credit report is that it helps collection agencies track the consumer down.”

Perhaps it pays to go your own way after all.

Image: Ed Yourdon, via Flickr

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