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COVID has changed how we spend and use credit. According to a 2020 report, credit card debt and use dropped sharply early on the pandemic as people spent less and used their stimulus checks to cover bills. Younger spenders, especially Gen-Zers, have also begun shifting away from traditional credit cards.

Now’s a great time to consider how credit plays into your freelance goals. It may seem personal, but taking a hard look at your credit score is actually good for business. Credit scores tell potential lenders, credit card companies, and banks whether you’re reliable and able to make payments on time, or will struggle to stay out of debt.

If you’re a sole proprietor with combined business and personal finances and want to apply for financing or grow your business, your credit will make a difference in determining your eligibility. People with higher credit scores usually pay lower interest rates on loans, cards, and mortgages.

How is your credit score calculated?

Personal credit scores are usually based on factors in 5 different categories:

• History of reliable payments – 35%
• Amount of credit limit used – 30%
• Length of credit and account history – 15%
• Mix of credit, debit, and other accounts – 10%
• Number of credit inquiries – 10%

Now remember, this is a breakdown of a personal credit score and how it’s reported. Many freelancers rely on personal credit to run their businesses, but if you have an LLC, C-corp, or S-corp, you may have a separate credit score with its own unique rules and reporting system.

Improving your credit score with just a debit card

One of the first pieces of advice you’ll get about building credit is to apply for a credit card. But for some freelancers, the high interest rates, fees, and concerns about out-of-control spending outweigh any potential perks like points, rewards or increasing your credit score.

Luckily, there are plenty of ways to boost your score, no card required. Here are a few to get you started:

• Make your payments on time. And that doesn’t just mean paying bills. If you have any loans or debt, like student loans, auto loans, or a mortgage, make a special effort to keep up with payments, even if it means paying the minimum. Setting reminders or switching to auto pay can give you the boost you need.

• Become an authorized user on someone else’s card. If you want the benefits of a credit card without applying for one, talk to your partner or a family member about adding your name to their card. Keep in mind that they’ll still be responsible for all payments. Also, if someone mismanages the card, both of your credit scores can take a hit, so consider this option carefully before you commit.

• Apply for a personal or business loan. Certain loans can look good on credit reports because they let lenders see how you handle debt and payments over an extended period. Just be careful about the types of loans you let yourself in for and maybe start with a smaller one to keep things manageable. Creditors care more about repayments than how much you borrow.

COVID-19 financial support options for freelancers include the Economic Injury Disaster Loan (EIDL) and the Paycheck Protection Program (PPP) Loan. EIDL applications will be accepted until December 31, 2021, but PPP loans are currently closed due to lack of funding.

• Minimize hard inquiries of your credit. These inquiries come up when you apply for financing, credit cards, or even housing if your rental applications come with credit checks. (Note: When you open a Lili account, we DO NOT check your credit).

They can stay on your report for up to 2 years and impact your score negatively (if a lender sees you are often asking for lines of credit, it is not a good sign). So it’s important to think carefully before applying for anything that requires a credit check. If you do, check to see how different credit bureaus handle inquiries over time and watch your report for unauthorized checks.

Credit can take a while to build, and learning how to boost your score is a bit of a trial-and-error process. Start by signing up for a free credit report service, like one of the ones on this list. This will help you track your credit, monitor your score, and start making a plan for your next financial step.