Being a freelancer here can garner 2 types of response from others – one of envy and one of concern. The first group are usually tired corporate soldiers who wish to have the flexible work hours you have; while the latter immediately thinks about the assumed instability in income a freelancer may face.
Well, if you are a freelancer, you know your financial situation best. But even if you are earning a stable income and perhaps even drawing more than your peers, you might still face some credit problem due to how the banking system works here.
Even if you are making a decent salary per month, there can be many factors that affect whether you will be able to get credit(loans and credit cards). Here are some of them, and how you can try to work around them:
So you’ve been declaring your income properly, paying your taxes and contributing to your CPF. But when you look at the criteria from a bank for a personal loan, you’d see that they need you to be earning a minimum income for $30,000 per year and for a self-employed, you need to show them last 2 years’ Income Tax Notice of Assessment and last 3 months’ bank statements. This is much stricter compared to those of salaried employees, who only need to show them 1 year’s worth of income tax notice.
So for instance, you might have earned an average annual income of $40,000 in the last 2 years but because you were not earning a consistent amount every month, you might get your loan application rejected.
What you can do about it: If you do have a large amount of savings in your bank account, you can use this as a way to convince the credit officer that you are credit worthy for the loan.
Another issue a freelancer might have is for a successful credit card application. Similar to the above example, you could be rejected, or perhaps because of the inconsistent nature of your income, the bank might apply a haircut to your income. This means that if you are earning $40,000 a year, applying a 30% haircut would only qualify your income at $28,000, which is below the minimum requirement of $30,000.
If you need a credit card more for the convenience of paying rather than having it as a means to “borrow” a large amount of money, you can do so with a secured credit card or a student card, which comes with a credit limit of $500.
There could be times where you would prefer to pay for a large purchase via installments so that you can better manage your cashflow. This can mean paying for a new laptop which you need for work, new desk for your home office set up or perhaps a replacement for a new mobile phone.
The options to get an installment payment here is very limited – you need a credit card. This is a problem for the freelancer because managing your cashflow is very important, and getting credit is hard. So what can you do?
There is now a new platform, Rely, which allows you to purchase items online with installment plans. The cool feature is that you don’t need a credit card for it! Simply go to the website, shop for your items and check out with your preferred installment plan. There is only a 10% processing fee, which is fully transparent and factored into your monthly installment payments. And that’s it, no other hidden fees or interest rates you need to be wary of.
This presents a viable solution for those who need to buy items but prefer to spread out a large purchase over a few months. What’s a saving grace is really the fact that you don’t need a credit card to qualify for this scheme.
For the freelancer who have little access to credit, you may have a bit of a chicken-and-egg situation with your credit score. Not having access to credit means you have a lack of credit history, but not having a high credit score limits your access to credit.
You can start by ensuring you have no late bill payments, even for your utility bills. You can also try to apply for the student credit card and use it sometimes, paying the monthly bill in full to earn some credit history.
So there you go! You just need a little tweak to help you get the credit you need, even if you are not a salaried employee!