What is a Thin Credit File?

If you’re just beginning to build your credit and you attempted to check your credit report and credit score, you may have received the notification that you have a thin credit file. What does a thin credit file mean, and how can you avoid receiving this notification in the future? We will explain the answers to these questions in much detail below.

What is a Thin Credit File?

The term thin credit file refers to having a limited credit history because there is not sufficient information in your credit report based on which a credit score can be generated for you. Typically, consumers who are just beginning to build their credit may receive this notification because a credit score cannot be calculated for them.

Having a thin makes it very difficult to be approved for credit cards or loans. That said, this can easily be remedied by opening credit cards, loans, or other types of debt and making payments on time to establish a good credit history.

Having good credit is essential to doing thing, such as financing a vehicle, buying a home, taking out a personal loan, or even renting an apartment, in some cases. That said, everyone who begins building their credit history begins with a thin credit file where there is insufficient information in his or her credit file. So, don’t be discouraged if you’ve received this notification.

You may receive the thin credit file notation in the following situations:

  1. You’re an adult and you just began to establish your credit
  2. You’re young and you’ve just started to build your credit
  3. You’ve never opened a credit card or taken out a loan
  4. You recently immigrated to the United States and you’re just starting to build your credit
  5. You used credit in the past, but years have passed since you’ve used credit
  6. You don’t use credit cards and don’t take out a loan, and rely primarily on the use of cash

Regardless of which situation you find yourself in, if you only recently opened a credit card or taken out a loan, you will begin to build credit. That said, it takes some time for your card issuer or lender to furnish information to the credit bureaus. Once your new credit card or loan history is sent to the credit bureaus, you will begin building your credit file. After just a few months of having your credit card or loan, you will likely stop receiving the thin credit file notification as your credit report will have enough information based on which a credit score can be calculated for you.

Thing You Can Do to Stop Receiving a Thin Credit File Notification

If you’ve received a notification stating that you have a thin credit file, here are some ways to avoid receiving it in the future:

1. Open a Secured Credit Card

If you’ve applied for a regular credit card and were denied because you have limited credit history (aka thin credit file), you should try applying for a secured credit card. Secured credit cards are significantly easier to be approved for than regular unsecured credit cards. Secured credit cards work the same way as do regular credit cards, and they can help you build your credit so that you can avoid being denied in the future for having limited credit history.

The only difference between a secured credit card and a regular credit card is that with a secured credit card, you must place a cash security deposit with the card issuer. Usually, your deposit determines your credit limit. For example, if you apply for a Bank of America Secured Credit Card, you must place a minimum deposit of $300, and you will be given a $300 credit limit.

If you use the credit card responsibly and make all of your payments on time, your card issuer will usually refund the security deposit to you within six to twelve months of opening the account. At that point, your card issuer may convert your secured credit card into a regular non-secured credit card.

Secured credit cards are a great way to build credit and they function as do regular credit cards, meaning you can use them just as you would a regular credit card, and your account status is reported to the credit reporting bureaus as is a regular credit card.

Make payments on your secured credit card, and your payments will be reported to the credit bureaus, boosting your credit score. That said, make sure to make all of your payments on time as missing even a single payment can cause significant damage to your credit score.

2. Take Out a Credit Builder Loan

If you have a thin credit file and you want to improve your credit file in order to qualify for regular credit cards and unsecured personal loans, you should explore the option of taking out a credit builder loan. A credit builder loan is different from a regular personal loan in that you’re required to make all of the payments on the loan first. After you’ve made all of the payments, you will receive the funds from the loan. Meanwhile, all of the payments you’ve made on the loan will have been reported to the credit reporting bureaus, boosting your credit score and establish a credit file for you. You can find credit builder loans at some banks and many credit unions.

3. Become An Authorized User

The quickest way to fatten your credit file is to become an authorized user on someone else’s credit card. That said, you should only become an authorized user on another person’s credit card if you trust them to use the account responsibly. When you become an authorized user, all of the account history associated with the credit card is added to your credit report, instantly creating credit history for you. As an authorized user, you will be issued a credit card with your name on it, and you can use it as can the primary account holder. However, only the primary account holder is responsible for making payments on the account. So, you should only add yourself as an authorized user on someone’s account if they trust you to use the card responsibly and you trust them to make payments on time. If the primary account holder misses payments, your credit will be negatively impacted.

4. Find a Co-signer & Take Out a Loan

If you have a thin credit file, one way to build credit is to finance a vehicle by asking a close friend or relative to cosign the car loan with you. When someone cosigns a loan with you, his or her credit is factored in and you’re more likely to be approved if you have a cosigner who has good credit. This is especially true if you have a thin credit file. That said, if you default on the loan, you will damage your own credit as well as the cosigner’s credit because you’re both responsible for the repayment of the money borrowed.

What Are the Consequences of Having a Thin Credit File?

If you have a thin credit file, you will face significant difficult opening credit cards, taking out personal loans, and obtaining financing for a home. You will face difficulty because most lenders rely on information in your credit report and your credit score when deciding whether to lend you money. Without that information, they have no way of telling how you’ve handled past finances, and how likely you are to pay the money you’re seeking to borrow. When there is sufficient information in your credit report, lenders can look at that information and assess your creditworthiness. So, if you’ve been denied a credit card or loan for having a thin credit file, follow the steps outlines in the section above to build your credit.

If You Have a Thin Credit File, Will You Have a Credit Score?

If you have a thin credit file, you will likely not have a credit score. You won’t have a credit score because there is too little information on your credit report based on which a credit score can be calculated for you. To obtain a credit score, you must have credit cards, loans, or other types of credit that report your account statuses to the credit report. The reported accounts will give the credit reporting bureaus information based on which they can calculate a credit score for you. That said, to have a credit score, you do not need 10 accounts, all you need to have is at least one account open for a minimum of six months. One account that reports to the three major credit reporting bureaus for at least six months.

How Many People in the United States Have a Thin Credit File?

According to Experian, approximately 62 million Americans have a thin credit file. So, if you thought you were the only one to have a thin credit file, think again. Having a thin credit file means that they have very few, if any, open accounts that report to the credit reporting bureaus. If you have a very thin credit file, you may not have a credit score as there is simply too little information in your credit report based on which a credit score can be calculated for you.

Frequently Asked Questions (FAQs)

1. What is a thin credit file and why is it bad?

Having a thin credit file is defined as having too little information in your credit report based on which a credit score can be calculated for you. For example, if you do not have any credit cards or loans, you will have a thin credit file, and will likely be denied credit.

2. How do you fix a thin credit file?

You can fix a thin credit file by opening credit cards, taking out personal loans, and making payments on those accounts. Your account status will be reported to the credit bureaus, and your credit report will be populated with credit information. This allows a credit score to be calculated for you, and allows lenders to assess your creditworthiness.

3. How can I thicken my credit file?

You can thicken your credit file by opening credit cards and taking out loans. Your lenders will then furnish your account status to the credit reporting bureaus, thickening your credit file.

4. How can I quickly build credit?

You can quickly build your credit by opening credit cards and taking out loans and paying them on time, keeping your account balances low, and refraining from applying for too much new credit within a short period of time.