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How credit score works if you're self-employed

While being self-employed does not directly impact your personal credit score in the UK, it can indirectly affect your ability to get a loan if you have a poor credit history or irregular income.

Here are a few things to keep in mind:

  • If you are self-employed, your personal credit score and credit report are still the first things lenders look at when you apply for a loan.
  • Lenders will usually check your credit report from one or more of the three major credit rating agencies - Equifax, Experian and TransUnion.
  • Most lenders may view self-employed borrowers as higher risk because of the unpredictable nature of self-employment income.
  • Lenders will also usually ask for more documents and proof of income.
  • They might also consider only your average income from the past three years as your “predictable” income, even if your income has been increasing recently.

Does my sole trader business have a separate credit rating?

No, as a sole trader in the UK, your business does not have a separate credit rating from your personal credit score.

However, you do have a separate credit report called a Non-Limited Business report.

This report is a version of your personal statutory credit report, and it is only available for sole traders and partnerships in the UK. It essentially combines details about your individual credit history and details about your sole trader business. But in short, no, your sole trader business doesn’t have a separate credit report or credit score.

This is very different from running a limited business.

Limited companies in the UK have a separate business credit report and credit score that is completely separate from the personal credit score of company directors.

This is why it’s essential to be very clear on how you plan to run your small business, even if it’s a “one-man band business”.

If you register as a sole trader, you are your business, and you have one credit history and score. When applying for a small business loan, the bank will only care about your personal credit history.

But if you register as a limited company, you’re technically a director of your business, and your credit history and score will be separate. When you apply for a small business loan through your limited company, the bank will look at your company credit history first.

Only when the business is very new or very small will the lender also ask to see your personal credit history – but that’s only because, in that situation, you’re going to be acting as a guarantor for your business.

How can I improve my loan and mortgage approval chances if I’m self-employed?

To improve your chances of getting a loan if you’re self-employed, here are some things you can do:

  • Seek out lenders and brokers who specialise in self-employed mortgages.
  • Have your accounts prepared by an accountant to meet lender requirements.
  • Gather at least two years of SA302 forms. These confirm that you’ve submitted a Self-assessment tax return as a sole trader.
  • Prepare documents regarding upcoming work contracts and customer lists.
  • Save the largest deposit possible, and aim for at least 10% of the property value as a deposit.
  • Claim fewer expenses through your sole trader accounts. This can help you show a higher income on your tax return. You might pay slightly more tax, but your chances of getting a mortgage will increase.
  • Try to add a guarantor with good credit to your application. Bonus if they are not self-employed and have a full-time job.
  • Consider offering collateral like a car or property that you own.
  • Look into alternative financing options like business credit cards or invoice financing.

Finally, one of the best things you can do is to work on your credit score. Keep making payments on time on your debt, don’t max out your credit cards, and make fewer loan applications în general.

You should also look into a specialised credit-building tool. One such tool is Wollit.

Wollit works by reporting a fixed fee monthly subscription as a loan repayment to credit reference agencies (Experian, Equifax, and TransUnion). This helps you build your credit history by showing that you can pay debt on time.

Eventually, this can improve your credit score and increase your chances of getting the loan you want (on the terms you want) to get a loan, a mortgage, or even to grow your self-employed business.

Wollit, no stress, no hassle - just a clear path to better credit

Terms apply. Results may vary. Improvements to your credit score are not guaranteed. Wollit Credit Builder plans are unregulated.

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Terms apply. Results may vary. Improvements to your credit score are not guaranteed. Wollit Credit Builder plans are unregulated.