What It Means to Have a Thin Credit File
While you may want to have a thin body, you don't want to have a thin credit file. A thin credit file is a credit history that has few, if any, credit accounts. 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
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. Businesses use your credit history to evaluate the likelihood that you're going to repay a monthly bill and your income to 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.
In this case, your application may be rejected, or if you're approved you may have to pay 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
According to FICO, creator of the FICO score and FICO Expansion Score, certain groups tend to have thin credit files. This includes recent immigrants, young adults, people who have recently been divorced or become widows, or people who mainly use cash. Credit scoring calculations, like FICO, can't generate a credit score for you unless you have at least one account that's been open for at least six months.
Lenders May Be Able to Work Around a Thin Credit File
If you have trouble getting a new credit account, ask the lender to use an alternate credit score or VantageScore or FICO Expansion score. Both these credit score solutions are a little more lenient on new borrowers and may give you a credit score when a traditional FICO score would not. Unfortunately, some lenders won’t consider these non-traditional credit-scoring methods for borrowers who have thin credit files.
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.
Note that 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.