Let's talk about credit for freelance writers.
Having good credit is important for freelancers because our income is scrutinized a lot harder when we apply for credit cards and loans. Because a freelancer writer’s income is somewhat less predictable and harder to prove than that of a full-time employed worker, we need to have a solid credit history to help get approved for credit card and loans.
What is Credit?
Credit is your reputation for paying your bills on time. Good credit means you’ve borrowed only what you can afford to repay and you’ve paid your bills on time. On the other hand, bad credit means you’ve fallen behind on your payments in the past.
What is a Credit Score?
Your credit is measured by your credit score. Credit scores generally range from 300 to 850 with higher credit scores being better. These days, you need a credit score above 720 to get approved for a credit card or loan, especially as a freelancer.
Your credit score is calculated using five things:
- 35% is how often you’ve paid your bills on time (paying on time is better)
- 30% is how much of your available credit you’re using (less is more)
- 15% is how long you’ve been using credit (longer is better)
- 10% is how much experience you have with different types of credit (credit cards vs. loans)
- 10% is how often you’ve applied for credit in the past year (fewer applications are better)
What is a Credit Report?
Your credit score is based on information in your credit report, which is a compilation of your credit cards, loans, and other credit-based accounts. Your credit reports are maintained by credit bureaus, agencies which collect your data and sell it to businesses who need to make a credit decision about you.
There are three major credit bureaus in the U.S. – Equifax, Experian, and TransUnion – and you have a credit report at all three of them. Your credit report could be different at all three credit bureaus because not all of your banks and lenders report to all three of the bureaus. You may have some accounts that appear on all three of your credit reports and some accounts that only appear on one.
How to Check Your Credit Report
It’s a good idea to check your credit report at least once a year. First, to make sure you haven’t been a victim of identity theft or credit card fraud. Second, so you know your creditors are reporting the right information. Finally, you need to know where you stand on all your accounts, even if you don’t plan to apply for a credit card or loan anytime soon.
You can check all three of your credit reports once a year for free by visiting AnnualCreditReport.com. You’ll go through a short verification process and then your credit reports will be given to you. This website was set up to give you the free credit reports granted to you by Federal law.
Be careful about ordering “free” credit reports from other websites, especially those that ask you to enter a credit card number. These sites typically enroll you in a trial credit monitoring program, then charge you if you don’t cancel within a certain period of time.
You can also pay for your credit report by ordering directly from the three credit bureaus. They have options for purchasing one or three credit reports.
How to Order Your Credit Score
Unfortunately, the government doesn’t give us a free credit score every year. But, can get a free credit score as part of a free credit report offer – one of subscription deals that you must cancel to avoid getting charged.
CreditKarma.com offers a free credit score from TransUnion (one of the three major credit bureaus). You don’t have to enter a credit card to get your credit score from Credit Karma.
Finally, you can purchase your credit score from any of the three credit bureaus or from myFICO.com.
Thanks for the breakdown LaToya. I have to second the importance of checking your credit report. I couldn’t believe some of the odd errors on mine. It was as if they just posted a bunch of random stuff to my file.
As an example, one of the credit bureaus did have my current address on record. But they had it listed as a former address (it had been correct previously). Somehow they took an old address of mine (2002) and listed it as the current. You would think this would be an easy thing to fix. It wasn’t. I filed a dispute. They told me to send a photocopy of my driver’s license, my social security card, and a recent utility bill to verify my identity and current address.
No problem. I faxed it in. I called them the next day to find out if they received it, because their automated system sent me another email requesting it after I’d sent it in. The person I talked to said they did have it in my file.
So about two months later I checked my reports again to see if that and other info had been updated. It hadn’t been. I call. They tell me they never received proof of identification, so they couldn’t fix the error. I mean, come on! So I sent it in again. And AGAIN I got an automated email (this time days later) telling me to send in that info. I thought I was going mad. Thankfully they finally got it straightened out, but I had to stay on top of them for months to get it done.
I had another account that was odd. It was for a utility company in my old college town. They were claiming I owed them money (it was paid off in full when I moved here). I disputed. Through that (also seemingly neverending) process, I found out they were trying to claim new charges for about 3 months after I moved out. Apparently they hadn’t shut down the service or something and it was being used by the landlord when he was having the place fixed up and everything (I stupidly wasn’t a big credit file checker in the past — now I check it religiously). That ordeal was even tougher to deal with, even after sending various proof that I didn’t even live there. It came down to the point where I had to send out a notice of intent to sue. Even then they tried to delay until the last possible minute, but did finally clear it from all reports.
I’m glad I eventually caught that and got my credit score back to where it belonged. Thing is, I wouldn’t have even noticed probably for quite some time if I didn’t check. Sometimes people find errors only after they’re not approved for credit. But I live a nearly entirely cash lifestyle (cut up the cards years ago). The only loan I still have is my student loan. When I’m ready for another car, I’ll be paying for it up front in full. I’m determined to do the same when I’m ready to buy a house (which won’t be for a few years down the road). So I wouldn’t have found out by applying for something. It could have been affecting my score for years (and therefore things like my car insurance rate as well) without me realizing it.
So yes, check your credit report. You might be really surprised to find out what’s on there. I sure was.
Right. Dealing with the credit bureaus can be tough. The incorrect address won’t hurt your credit score, but, the past due bill definitely was.
It’s good you mentioned credit score impacting your insurance rate, because credit scores are used for more then getting credit cards and loans. Information on your credit report also influences whether you pay a security deposit when you get utilities or a cell phone turned on. It also impacts whether you get a job. So, if any freelancer writers decide to go back to work full time, a positive payment history could have an impact. Even some landlords use credit reports to decide whether to rent to you.
The problem with the address wasn’t an issue of credit score, but more about the sheer amount of time I had to waste cleaning up someone else’s error.
If I hadn’t checked the reports last year and found the issues, renting would have probably been how I’d learn the hard way. I’ve toyed with the idea of moving for a few years now, and I probably wouldn’t have noticed the problem until trying to get a new place. I was absolutely astounded by how much that one incorrect listing affected the credit score. I just wish some of the folks with the bureaus weren’t so incompetent in dealing with disputes (although perhaps it was just bad luck that I got so many duds in the process).
Having good credit goes along way, unfortunately many people (including myself) had a crappy 2009 (past 2 years sucked). I didn’t have credit card debt until I moved out to AZ two years ago. This has been a new experience for me. Furthermore, some of us had our credit limits deeply slashed by credit card companies. It wasn’t my fault that no one was keeping an eye on Wall Street or the banks that were making bogus loans. It wasn’t my fault that I didn’t land full-time employment in AZ after countless resumes sent out, ads placed on the internet, and reaching out to people through networking.
Innocents got caught up in the “bullets flying through the real estate and financial markets” and now we must make our way back. My advice is to take it one step at a time and don’t be too hard on yourself over your credit score. I’m over it…
I can’t stand having credit. In fact, I would say credit was overrated if LaToya wasn’t right about all the other “stuff”– but as for straight out credit for cards, cars, etc, I wish sometimes that I DIDN’T have it. It’s so hard to turn down the nicer car, the flat screen TV, etc. I don’t need those things, but there are days when I sure do want them, and there they are, just ripe for the picking. Too easy. yuck. nothing but a PITA in the long run.
This past time we went to Mexico, we wanted to rent a car and pay the entire cost UP FRONT with visa debit card, and they wouldn’t allow it. Had to use a credit card. Annoying.
The interesting thing, Allena, is that back when I did use credit cards I couldn’t just run out and buy those things if I wanted them. It wasn’t until I got rid of the option that things got better financially. Starting my PR firm years ago was one of the best experiences. I literally started with nothing, and used no credit whatsoever. I had to learn how to make better spending decisions to make the business thrive, and I took those lessons to my personal life. Now when I want the new tv I can go out and pay cash (did this year actually) and not feel like it’s a burden for months or years to come. It’s incredibly freeing, and if I were still using credit cards I really hate to think about how much I’d be overpaying for things financed right now. The temptation to finance over time is just too great, and not having that option made a huge difference in how I spent my money in general.
Renting cars definitely does suck. Fortunately it’s not something I have to worry about often, but when I do I just make sure the company accepts debit cards first. Not all do, but more seem to these days than in recent years. Yes, it sucks having a hold put on your actual money for a while, but it’s been a pretty small price to pay overall. If someone rents regularly, I can see having a credit card being more worth their while, even if it’s just kept around for those kinds of things. A cash lifestyle is one of those things that’s great for some people (like me), but I wouldn’t suggest it for everyone.
@Rebecca, the credit card industry definitely stuck it to consumers this year by hiking interest rates and slashing credit limits. Chase even increased minimum payments for some customers by 150%. So I agree that not everyone who’s in a bad credit situation right now got there by missing payments and charging too much. Fortunately, we can avoid shifty credit card issuers by paying credit card balances in full every month, or by avoiding them all together.
I could talk forever about how technology, including credit cards, has filled us with a self-entitled feeling of instant gratification that makes it sooo hard to save up for those expensive things we really want, rather than borrowing to pay for them now. I don’t think there’s anything wrong with using a credit card as long as it’s used the right way, e.g. not to buy things you really can’t afford. Many of us have a hard time realizing that a credit card is not an extension of our wallets but the income we’ve yet to earn. When you use credit, you’re borrowing from your future and paying to do so.