A "thin" credit file is a credit history that has few, if any, credit accounts. According to Experian, 62 million Americans are faced with thin credit files and therefore have limited access to credit. You might have a thin credit file you've never had a credit account, it's been several years since your last credit account was closed, or if you've opened a new credit account within the past six months.
The Drawbacks to Having a Thin Credit File
One of the biggest problems of having a thin credit file is the difficulty in opening new accounts. Here's why. When you make an application with a bank or another business, they're going to consider two major factors: your credit history and your income. Your credit history is reviewed to evaluate the likelihood that you're going to repay a monthly bill. Likewise, your income helps gauge your ability to repay. A thin credit file can keep you from getting approved, even if your income would allow you to qualify.
Depending on just how "thin" your credit file is, the business may not be able to get a credit score for you. And for the thinnest of credit files, they won't be able to view your credit report at all.
You must have at least one credit or loan account open and reported to the credit bureaus for at least six months to generate a credit score.
The application outcomes aren't always very favorable for consumers who have thin credit. Your application may be rejected, or if you're approved, you may be assigned a higher interest rate. For certain services, like electric service, you may have to pay a security deposit to establish an account.
Certain Groups of People Are More Likely to Have a Thin Credit File
Certain groups tend to have thin credit files. This includes Black consumers, Hispanic consumers, and consumers in low-income neighborhoods. Young adults and consumers born in the 1950s (when there was credit reporting) also tend to have thin credit files.
Lenders May Be Able to Work Around a Thin Credit File
If you have trouble getting a new credit account, you may be able to take advantage of products like Experian Boost or UltraFICO to help raise your credit score. Both these credit score solutions use alternate data to boost your credit score.
Overcoming a Thin Credit File
You have several options for overcoming a thin credit file and building a credit history.
- Get a retail or gas credit card or a card with your current bank. You can begin building your credit by getting a credit card with a lender that typically approves borrowers with thin credit files. This includes retail and gas credit cards. You might also apply for a credit card at the bank where you have your checking or savings account. An existing banking relationship may make it easier to get a credit card application approved.
- Become an authorized user on someone else's credit card. Being an authorized user would allow the history for that account to appear on your credit report, helping you qualify for other credit.
- Get someone to cosign with you. Having someone open a joint account or cosign for you, would also help you begin building your credit history.
- Open a secured credit card. You'll have to pay a security deposit for the secured credit card, but the deposit is only used if you default on your credit card. Your deposit doesn't have to be expensive. With the Capital One Secured Mastercard, you may be able to pay a security deposit as low as $49.
- Apply for a credit builder loan with a local credit union. The money from the loan is placed into a savings account while you make monthly payments on the loan, just as though you really borrowed the month, and your monthly payments are reported to the credit bureaus. Once you've repaid the "loan," the funds in the savings account, plus the interest in some cases, is yours to keep. Check with your local credit unions to see if this type of loan is available and what you need to do to qualify.
Even after you open a new account, it will take a few weeks to appear on your credit report and at least six months to calculate a credit score for you.
If you believe you have a thin credit file, Credit Karma may be useful. Credit Karma, a free credit tracking service, can tell you why you have a thin credit file and recommend specific credit cards to help you build up your credit history.