A thin credit file can be a stop you from accessing credit because lenders are unable to identify your creditworthiness if you don’t have enough information on your credit report. People with a thin credit file can sometimes feel like they’re going round and round: There are several ways you can build up your credit history. In order to make it stronger, you must establish a new credit account that is reported to one of the three credit reporting agencies: Equifax, TransUnion, and Experian.
1. Apply for a Secured Credit Card
One of the best ways to start building your credit history is to apply for a secured credit card, which is specifically designed to help users establish credit. A secured card works just like a normal credit card in that it comes with a credit limit and is accepted by merchants in the same way credit cards are. However, the difference is that a secured card requires a refundable security deposit in order to open an account, it will also be your available credit. Once you apply for a secured card and submit your security deposit, which can range between $200 and several thousand dollars (it’s your choice), start using the card to make purchases.
Once you have established a track record making payments on time, your credit history and scores will improve. (If you default on the payments, however, your credit scores will take a big hit—and you will lose the security deposit used to secure your credit line.) Try to keep your monthly spending on the secured card to about 10% or less of your credit line, because credit utilization ratio has a 30% impact on your credit scores.
2. Apply for a Credit-Builder Loan
Credit-builder loans are designed to do just that—help applicants build their credit histories. Such loans are typically available at smaller community financial institutions and credit unions. In most cases, the money you borrow is actually held by the lender in a savings account. Once you have fully paid the loan off is when the funds are released to you. If you do consider a credit-builder loan, look for one with a relatively short term, like 24 months or less. You should also make sure that the lender will report your payment activity to one of the three national credit bureaus if not look elsewhere.
3. If You Rent, Have Your Rental Account Reported to the Credit Bureaus
Some credit-scoring models now use rental data to calculate credit scores. If you have a good track record of paying your rent on time, consider getting your rental payments on your credit reports. Talk to your landlord or property management company to find out if the report rent payments to the credit agencies. If they don’t, you can sign up for a rent payment services.
4. Don’t Apply for Too Much Credit at Once
If you have a thin file, it can be tempting to apply for a bunch of new accounts in order to accelerate your credit build up. Don’t do it—applying for too many accounts can actually hurt your credit scores and set you back even further. Lenders may get the impression that you are not good at managing credit if there are too many new accounts in a short period of time. Be selective in which accounts you go for, only if you NEED to and start slow. Maybe after six months, that’s when you might consider adding another.
5. Check Your Credit Reports
When you embark on your credit journey, you should also make sure that the information being reported to the credit agencies is correct. Make a habit of checking your credit reports from each of the three credit bureaus: Equifax, TransUnion, and Experian. Setup credit monitoring alerts, this is rea-time information that can help you get your credit profile thicker.
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