Let’s say a stranger comes up to you and asks for a $1,000 loan. You start asking some questions, and find out that the stranger hasn’t accomplished much in life. He has had some trouble paying all his bills on time. He’s even defaulted on prior loans. But he’s sorry about all that and he’s promised to turn over a new leaf – if only you’ll just trust him this one time!
How would you feel about granting this stranger’s request? Queasy is probably the right word to describe the response to such a request.
That’s also how someone will feel about lending you money to start your freelance business, especially if you’re just starting out and don’t have an extensive track record, if your personal credit score is poor. And that’s also how an investor will feel – even if it’s a friend or family member – about putting money into your self-employment venture.
In today’s economic climate, a freelancer’s personal credit score has become an important proxy for her trustworthiness, her level of responsibility and her value as a solid investment. It doesn’t seem fair, because oftentimes it’s not irresponsibility but tough circumstances – costly medical problems, say, or a divorce – that can wreck a person’s credit. Still, a FICO score under 700 can mean that your dream of self-employment just won’t come true - unless you can bootstrap your venture, meaning that you’ll have to come up with all the upfront cash yourself.
What if you don’t even know what your credit score is? Many Americans do not. You can request a free copy of your credit report from FICO, the Fair Isaac Corporation. Check your score and make sure that it accurately reflects your credit history. Sometimes an error can lower your score without you even knowing about it.
If your score is low, you can do some work now to improve it. Start by developing a positive credit history, borrowing small amounts and paying them back on schedule. Make sure that you don’t pay any bills later than their due dates or incur any penalties. Pay down as much high-interest debt as you can, to lower your level of outstanding debt.
After you have established that you can pay your bills on time, you will find lenders and vendors searching you out and offering you favorable terms because your track record will be good. It can help to register your business with Dun & Bradstreet, a service that many companies use to check the credit ratings of self-employed individuals and small businesses.
Having a good credit history can be a lifesaver when you are growing your freelance business and taking on larger projects. You may need credit in order to accept a big assignment. And if your personal credit score is stellar, you can request that your loan application be expedited. Knowing that you have access to cash when you need it – either from lenders or investors – frees you up to bid on larger, more lucrative jobs than you could handle without a line of credit or infusion of outside capital.
If you need help repairing a lousy credit score, CPA for Freelancers™ has an affiliate company which does credit repair. Make sure that you get good references on anyone you hire to help. Many so-called credit repair agencies are not legitimate and some charge you for basic information that is available online for free. Look for a consultant who will work with you personally, such as MyNYCreditRepair.com, and choose a licensed CPA or nonprofit organization over a for-profit outfit that advertises on late-night TV.
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