How to Protect Credit in the Gig Economy

How to Protect Credit in the Gig Economy

Being a freelancer or your own boss in the gig economy may sound like a great deal, but without proper planning, a freelancing lifestyle can turn into a credit disaster. Here’s how to stop that from happening, according to

When you make a living doing freelance assignments, temporary jobs or consulting work, you get flexible hours, and may even be able to work from anywhere. The appeal is far-reaching. Nearly 40 percent of Americans said they would prefer being a gig worker to holding a full-time job, according to a 2016 survey by global workforce solutions adviser Staffing Industry Analysts.

In fact, approximately 57.3 Americans – 36 percent of the U.S. workforce – do some type of freelancing, according to a 2017 study by Upwork and Freelancer’s Union. A whopping 47 percent of working millennials freelance, and by 2027, the majority of the U.S. workforce will consist of freelancers, the study found.

But the freedom and flexibility can come at a cost. Maintaining a good credit score and having credit readily available can become more difficult, and a non-steady paycheck can leave you teetering on the edge of financial ruin. If you’re thinking about joining the gig economy, be proactive to protect your finances and maintain a good credit score.

Please note: It is best to consult with a registered advisor for sound financial advice for your freelance business. 

The following steps are some suggestions on how to start your new career journey on firm financial footing. 

1. Save before you leap

When working small gigs, you may go weeks without work or a client may pay late, potentially leading to late bill payments and debt. Make sure you’re able to withstand the financial ups and downs by saving enough money to tide you over for at least six months. And when you’ve had a particularly good month as a freelancer, stash the extra money in an account to cover those times when business is slower. A good rule of thumb is to make sure you earn enough in 10 months to cover you for 12. 

2. Apply for loans in advance

Many gig workers find that getting a bond or other loans can be more challenging without a full-time job. If you know before starting gig work that you’ll need a loan in the near future, you may even want to get it before quitting your full-time job. If you’re already freelancing, build up a deposit, make sure you keep your paperwork, tax affairs and bookkeeping up-to-date, and maintain a good credit score.

3. Gain access to credit

Credit can be an asset in the gig economy – as long as you use it wisely. “Freelance work tends to dry up every so often, so that line of credit can be valuable until the next client comes knocking at your virtual door,” says Stephen Seifert, of Portland, Oregon, who has done SEO, web development, copywriting and editing in the gig economy.

Having credit also comes in handy for emergencies, such as when your computer goes on the fritz, adds Seifert. 

4. Protect your credit 

Once you have left your full-time job, you will no longer have a steady paycheck. That means it’s more important than ever you master your budgeting and put some safeguards in place to protect your credit.

  • Know and cut expenses. One of the benefits of gig work is that there is no limit to how much you can make. Determine how much you need for monthly expenses so you know the minimum you need to bring in each month (and remember, you need to earn 12 months’ income in 10!). Look for ways to reduce costs so you have less pressure while your income grows. 
  • Use one credit card for business expenses – having them all in one place will help you when it comes time to submit your tax return. And don’t forget about those tax deductions for expenses incurred in the production of income.
  • Use a credit card with a low interest rate if you expect to carry a balance for more than 30 days. Use a credit card that offers rewards that can benefit your business for purchases that you expect to pay off quickly.

One thing to keep in mind is that a growing debt load may put a damper on your credit score. The more debt you have relative to your available credit, the more damaging to your credit score. “You always want to be cognisant of that debt-to-credit utilisation ratio,” warns Nancy Bistritz-Balkan, director of public relations and communications for Equifax.  

Create debt-repayment plans in advance. If you know you will be juggling debt, be proactive about it. Decide how fast you can pay the debt off and stick to that plan, says Bistritz-Balkan. When you have an exceptional month, put more money toward your debt payments.

Please note: This informative article does not constitute financial advice. If you require financial advice, you need to contact a registered financial advisor. 

This article was adapted from ‘The ultimate guide to protecting credit in a freelance and gig economy’ by Tamara E. Holmes and published with permission from For more credit management tips, and to read the rest of this article, please click here.