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Introduction
As a digital creator, you can have millions of followers (and millions of dollars) but still get rejected when you try to buy a house, a car, or even get approved for that apartment you have your eyes on.
It might sound strange, but lenders don’t really care how much cash you have in your bank account; they’re more interested in your credit score: a number that says how risky (or reliable) it is for you to borrow money.
We’re living in the Golden Age of the creator economy, with 2+ million creators earning more than $100,00 per year. But it’s a different story when it comes to credit scores. Many creators are young or haven’t had opportunities to build their credit history. They’re mostly self-employed, their income is volatile, and lenders don’t understand how their business works. That means some of the highest earners are stuck with low credit scores.
At Karat, we’re on a mission to change that. Keep reading to see why it’s essential for creators to establish credit and how to boost your score.
What Is Your Credit Score, Exactly?
Your credit score is a number that indicates how likely you are to repay the money you borrow. It’s a three-digit number, usually between 300 and 850. The higher your credit score, the more likely you’ll be approved for a loan, lease, credit card, or mortgage.
You might think earning more money would increase your creditworthiness. But your income doesn’t impact your credit score. Credit scoring systems only care about how much money you owe—and whether you can pay it back.
Credit scores were invented in the 1950s when Bill Fair and Earl Isaac founded the Fair, Isaac, and Company (FICO), which is still the most popular credit score provider. The exact algorithm for FICO credit scores is a secret, but it’s based on five main factors:
1. Payment History (35%): Your history of paying credit bills on time
2. Debt Owed (30%): How much money you owe, relative to how much credit you have available
3. Credit History Length (15%): How long you’ve had credit, whether from a credit card or some type of loan
4. Credit Mix (10%): What types of credit accounts you have under your name, including student loans, car loans, credit cards, and mortgages
5. New Credit Inquiries (10%): Any time you open or apply for a new line of credit—the more frequently you open or apply for new lines of credit, the lower your score tends to be.
Why Should Creators Care About Credit Scores?
If you’re happy with your income and cover your expenses easily, credit scores might not seem like a big deal. But over the long-term a high credit score can save you thousands on interest rates for cars, houses, and loans.
Think of it like a cheat code for saving money on big purchases.
Let’s say you plan to purchase a home. According to NerdWallet, someone with a 620 credit score would pay $65,000 more on a $200,000 mortgage than someone with a score of 760+.
The same principle applies to car loans, insurance premiums, apartments, and even cell phone plans: When you have a good credit score, it increases your chance of scoring better deals because it signals that you’ll make your payments on time.
Alternatively, having a low credit score (or no credit score at all) makes you appear “risky,” even if you have more than enough cash to cover the payments.
Bottom line: building a solid credit score sets you up for long-term financial success.
4 Ways to Improve Your Credit Score as a Creator
If you’re a self-employed creator, you might have a low credit score (or no credit score). Don’t worry though—here are four simple tips to boost your score.
1. Apply for a Karat Card
Using a credit card is a great way to establish and improve your credit (assuming you make your monthly payments on time). However, applying for a credit card can temporarily hurt your credit score. That’s because credit card issuers often do a “hard inquiry” or “hard pull” on your credit file, which can lower your score by as many as 10 points.
We don’t think you should be punished for making savvy financial decisions—that’s why we made the Karat Card: the first business credit card that also helps build your personal credit history.
The main difference between other credit cards is that the Karat Card requires full payment of your balance at the end of each billing cycle. Since your balance can’t carry over, you don’t have to worry about interest. As you establish a good spending and payment history, your credit score may increase over time.
2. Put Your Bills on Auto-Pay
Paying your bills on time can help you boost your credit score—that includes car payments, medical bills, student debt, rent, and utilities. Since payment history represents the biggest chunk of your FICO credit score, consider putting your bills on auto-pay so you don’t accidentally miss a payment.
3. Limit Applying for New Accounts
Applying for loans and credit cards—especially in a short period of time—might lead to a hard pull on your credit, which can ding your score.
4. Keep Your Old Accounts Open
When you want to boost your score, avoid closing any old credit cards that you’ve paid off, even if you don’t use them anymore. Keeping these accounts open will help maintain your credit history length, which represents 15% of your FICO credit score.
Creators Build Credit with Karat
Whether you have low credit or no credit, you can start improving your credit score with consistent, on-time payments using the Karat Card. You’ll thank us next time you apply for a loan, apartment, or mortgage.
“Karat is the best business credit card for creators,” says chess master and social media star Alexandra Botez. “They approved men when other banks rejected me twice.”
If you’re a creator looking for a business card that can help you boost your credit score and has custom benefits, apply for your Karat Card today.
