It can be tough for a “non-traditional” earner to repair a credit score since most lenders prefer W-2 income. As a freelancer, getting approved for new credit so that you can improve your credit score can be a hassle – but we’ve got some tips any earner can use.
Breaking Down Your Credit Score to Rebuild it
The pandemic pushed many people to freelance work and the gig economy to cover bills as traditional employment options lessened thanks to shutdowns. Being a freelancer can offer the freedom to work on your own terms, but many traditional lenders can be skeptical about approving you for a loan because your income may not be perceived as steady as a W-2 income source – work provided by an employer.
Repairing your credit score is possible when you work for yourself. Here are a few different tactics you can use as a freelancer to repair your credit score:
- Get Your Stuff Reported
Do you already have bills that you pay every month? Do you have a good repayment history with those accounts? Then it may benefit you to use a credit reporting service to get those accounts on your credit reports.
Things like video and music streaming services, your electric bill, car insurance, and your phone bill could be the ticket to improving your credit without having to take on new credit. Experian Boost is one of these services, and it looks at your current bills and attempts to get them on your credit reports so your timely payments contribute to your credit score. And many are free, too! Visit our resource center for more information on services like this.
- Consider a Secured Credit Card
A secured credit card is secured by a deposit that you pay when you open the account. If you’re unable to repay the balance on the card, your deposit covers it so the lender doesn’t lose out on money. Because you start the account with a deposit, backing the card up with your own money, borrowers with less than perfect credit have a higher chance of getting approved for a secured credit card over an unsecured credit card – which isn’t backed up by anything.
It’s recommended that borrowers try a credit union for a secured credit card for a better chance of approval, and it helps if you’re a member and have been for a while. Getting approved for a secured credit card is usually easier than an unsecured credit card, and it could be the way you boost payment history and mix up your credit report with a revolving credit account.
- Look for a Cosigner or Co-Borrower for New Credit
If lenders are giving you grief about your income type and you’re trying to take on an auto loan to repair your credit, then a cosigner or co-borrower could help increase your approval odds.
A cosigner’s someone who lends you their good credit score to help you meet credit score requirements. If you have a non-traditional income type coupled with a poor credit score, it may be tough to land an approval alone. A cosigner could help you get approved for a loan and the on-time payments enhance your credit history.
A co-borrower is someone that adds their own income to yours on the loan application. Co-borrowers are typically spouses or life partners, and they combine incomes to get approved for larger vehicle loan amounts. If your freelance income is making it hard to meet income requirements, then a co-borrower may be able to help out. With a co-borrower, both of you are responsible for the loan, and you both get it reported to your credit reports.
- Consider Special Financing
Special financing is another term for a bad credit auto loan, and subprime lenders are included in this category of vehicle financing. These lenders are signed up with dealerships, and they’re able to assist bad credit borrowers. They typically require that their borrowers have a gross (pre-tax) minimum monthly income of around $1,500 to $2,500.
Not every subprime lender can approve a loan for borrowers with 1099 income, but many do. To prove your freelance income is enough to afford a car loan, expect to need around two to three years of tax returns and possibly bank statements.
Subprime car loans are reported by the credit bureaus. Your timely payments and the auto loan can help build a positive repayment history, add to your credit mix, and prove to the credit-scoring models that you’re willing and able to repay your loans.
Understanding Leads to Smarter Actions!
No matter how you get your money, through an employer or freelance work, understanding what your credit score is made up of is a vital step to repairing it.
There are a few credit score scoring models, but the most commonly-referenced one by lenders is the FICO credit scoring model. It’s a three-digit number between 300 to 850 based on the information recorded on your credit reports. The higher your credit score, the better off you tend to be as a borrower.
Here’s what the FICO credit score is made of:
- Payment history – 35%
- Amounts owed – 30%
- Length of credit history – 15%
- Credit mix – 10%
- New credit – 10%
Payment history is the most important part of your creditworthiness. This is because lenders are usually most concerned with your ability to repay loans on time, consistently. For this reason, the number of on-time payments you have reported on your credit reports holds the most weight in determining your credit score. However, your missed and late payments hold a lot of weight, too – sometimes more than on-time payments.
One of the better ways to improve your credit score is to pay all your bills on time, avoid missed and late payments, and have those accounts listed on your credit reports to add meat to the other categories.
We Want to Help You Find Your Next Car Loan
Many new borrowers and bad credit borrowers look to vehicle financing as a way to jumpstart their credit history and improve their credit score. If you’re in need of a car and need to repair your credit, then look to us at Auto Credit Express!
We’ve put together a nationwide network of special finance dealerships to help borrowers find the resources they need for vehicle financing. To get started, fill out our free auto loan request form and we’ll get right to work looking for a dealer in your local area that’s signed up with subprime lenders.