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Advice on credit file and employment

Mark Cappel
UpdatedMar 7, 2015

Is being self employed considered bad for your credit history?

Hi, My question concerns my personal credit file. My file shows no employment history. I have owned and operated my own business since 1992. I file and have paid all income taxes as required, I am a legitimate tax paying business. Should this be of any concern on my part, as for future loan requests,as in auto or mortgage,and if so what can I do? Should I leave things as they are? I have good credit. I hear some lenders frown on self employment. Thank you for any help on this matter. JP

Relax; the fact that your credit report doesn't show an employment history is of no great concern.

When lenders look at your employment history, they are trying to establish that you have a stable source of income. Owning a business for as long as you have demonstrates stability.

Employment History Area on Credit Reports

Employment history is not calculated into your FICO score. The employment history on a credit report is not meant to provide a comprehensive listing of all the places that you work. It is primarily used as another way to ID you, to verify that you are the person on the report.

When you apply for a credit card or a loan, the creditor may ask you for your current employer or past employers. That information can be reported to the credit bureaus and noted on your report, but it is not necessarily reported.

A lender will not look to your credit report to establish your employment history. You don't need to be concerned about the lack of employment history on your credit report.

Qualifying for a Loan

You are correct that it can be harder to qualify for a loan when you are self-employed. The main reason for that is that self-employed people have an incentive to show as low an income as legally possible on their tax returns. They want to claim every legal deduction they can, to lower the amount of taxes they will owe.

However, the lower the income that you show on the tax returns, the harder it is to show a lender that you meet the lender's debt-to-income requirements. This issue trips up many self-employed borrowers, especially when it comes to mortgage loans.

If you would like to learn more about credit, credit reports, and credit scoring, I encourage you to visit the Credit Resources page.

I hope this information helps you Find. Learn. Save.