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Applying for Credit When Self-Employed: What You Need to Know

While you may be content with the ebb and flow of not having a steady paycheck, lenders can get wary about lending money to those with inconsistent incomes. 

February 10, 2022

As great as self-employment can be, there are also some downsides that can be a bit of a bummer — like having trouble qualifying for credit products. While you may be content with the ebb and flow that comes with not having a steady paycheck, lenders can get wary when it comes to lending money to people who have inconsistent incomes. 

Let’s take a closer look at:

  • The challenges that come with applying for credit when self-employed

  • How you can provide self-employed proof of income

  • What you can do to strengthen your credit profile so lenders are more likely to work with you 

How self-employment can affect your credit applications

If you're used to making purchases in cash and paying off your credit card in full each month, you may not feel like credit is an important part of your financial life. While you may not need to get your hands on credit right now, you may need to borrow money to make some of life’s biggest moments happen. 

Here’s a few examples of different credit products you may find yourself needing one day:

  • Mortgage loan

  • Auto loan

  • Personal credit card

  • Business credit card

  • Personal loan

  • Business loan

So, why does self-employment affect your credit applications? Even the most successful entrepreneurs may find they run into picky lenders who aren’t too keen to lend money to someone without a steady paycheck coming in.

While your credit history is a major factor for lenders, they also take the "five Cs" into consideration. 

The five Cs represent:

  • Capital, assets available to repay the loan 

  • Capacity, monthly income

  • Collateral, assets you can use to secure the loan

  • Conditions, factors like the borrowing amount, terms of the loan or the current state of the economy 

When you’re self-employed, a lender may find your capacity to be a bit too risky, so it’s important to make sure you have a strong credit history and have capital or collateral available. 

Where you’re in your self-employment journey can also sway a lender. If you’re newly self-employed and don’t have a lengthy track record of generating income, the lender may not have enough faith you’ll be able to make your monthly loan payments. Even entrepreneurs who’ve been in the game a while can make lenders nervous if their income tends to fluctuate a lot. 


While you may not mind waiting three months for your next big paycheck — and as a result save and budget accordingly — a lender can worry about the consistency of your cash flow. 

What you need to apply for credit when self-employed

One of the biggest hurdles you’ll need to overcome when applying for credit is to provide self-employed proof of income. It’s okay to have some fluctuation in your income, as long as you can show a lender that you make sufficient income on a regular basis and can manage your loan payments. 

When applying for credit as someone who is self-employed, here’s how you can provide proof of income:

  • Pay stubs. Depending on your business model, you may have pay stubs from clients (this is more commonplace with freelancers and consultants).

  • Tax statements. At a minimum, you’ll need to share last year’s tax statement, but some lenders may want to see a couple of years worth of tax statements to feel confident about your ability to generate income. 

  • Bank statements. A history of regular bank deposits can show you have a stable flow of income. 

  • Profit and loss statements. Entrepreneurs that run a business with expenses will likely have a profit and loss statement or some sort of ledger documentation that outlines a summary of their business expenses and revenue, which can help the lender better understand your income potential. 

  • Social Security benefits statement. This statement shows the benefits you’ll receive when you retire and you can access this statement through the Social Security Administration.

  • Court-ordered agreements. If you receive alimony or child support, you can request a copy of the agreement from the court and present it to the lender as proof of income. 

Again, it’s also helpful to show the lender what capital you have available that can help you repay the loan if your income stalls and that you have a good credit score and strong history of repaying your debts on time.

Credit application mistakes to avoid — to better your odds

When you apply for credit, a few missteps can make your journey harder. Avoid these mistakes to improve your odds of being approved. 

  • Not checking your credit before applying. Before you apply for credit, it’s important to check your credit report from each of the three main credit bureaus to get an idea of what your credit score is, what type of lending products you can qualify for and if you need to remedy any mistakes on your credit report. 

  • Applying for multiple credit products at the same time. When you apply for a credit product, lenders generally run a hard credit inquiry on your credit report. Not only does this knock your credit score down a bit, but other lenders will be able to see what credit products you’ve applied for recently. You don’t want to have too many hard inquiries in a short period of time, so try to limit the credit products you apply for to ones you feel confident you’ll be approved for. 

  • Having a high credit utilization ratio. Lenders prefer to see a credit utilization ratio under 30%, so pay off any credit card balances or other sources of revolving credit to keep your rate of used credit to available credit low. 

What to do if your credit application is rejected

It would be nice if there were self-employed loans on the market designed for consumers who work for themselves, but for now, you need to play the lender’s game. 

If you struggle to get approved for credit products because of your self-employment status, there are a few paths you can pursue next. 

Secure the credit card or loan with collateral

Securing a line of credit, loan or credit card (known as a secured credit card) with collateral will better your odds of being approved for credit. The lender's risk level goes way down when they have the option to seize your collateral if you fail to repay your loan.

Apply for credit through a credit union

Some credit unions have more lenient lending requirements than banks. If you belong to a credit union, it’s worth looking into their lending options. 

Make a bigger down payment

If you’re applying for a mortgage or auto loan, putting down a large down payment will reduce the amount you need to borrow and strengthen your application. 

Get a cosigner

When you have a cosigner, they take on equal responsibility for paying back the loan. If you fail to repay the loan, they’re obligated to make the payment or risk harming their credit, which can give more confidence to the lender. 

Self-employment has plenty of perks, but applying for credit isn’t always one of them. But, with some planning in place, getting one doesn’t have to be a full-time struggle. 

Is credit card debt repayment also part of your financial plan? Consider Tally†. Tally is a credit card debt repayment tool offering a lower-interest line of credit that can help streamline your repayment process. 

​​†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.