Having a thin credit file can make it more difficult to qualify for credit and services when you need them. Even if you are approved, a thin file can keep you from getting the best rates and terms available. Here’s what you need to know about thin credit files and how building a robust, positive credit history can help you.

What Is a Thin Credit File?
A thin credit file typically refers to a credit history with fewer than five credit accounts on a credit report maintained by one of the three national credit reporting companies: Experian, TransUnion and Equifax. Approximately 62 million Americans have a thin file, according to an Experian report. Most credit scoring models need at least one or two active credit accounts on a credit report to generate a credit score. They also typically require payment activity for the past three to six months. If you have a thin file, a lender may not be able to obtain a credit score when considering your application. Who Is Most Likely to Have a Thin Credit File?
You may have a thin file if you:
  • Are young and just beginning to establish credit in your name
  • Have recently moved from another country and have not yet established credit in the U.S.
  • Haven’t used credit in a long time
  • Have very few credit accounts or accounts that have not been active recently
  • Generally pay with cash and choose not to use credit often
How a Thin File Affects You
A thin credit file can make it more difficult to access new credit when you need it, including the ability to:
  • Be approved for a mortgage loan, car loan or personal loan
  • Obtain a credit card account
  • Qualify for an apartment or rental home
  • Open a cellphone or utility account

Most lenders in the U.S. rely on the information in your credit history to help them obtain or calculate a credit score and assist them in the decision-making process. If you have little to no recent history managing credit accounts, a lender may feel they are unable to accurately assess their risk in extending the credit you are requesting. As a result, a consumer with a thin credit file could be denied credit altogether, or possibly only get access to a loan or credit card at very high interest rates, which can be costly.

How Do I Fatten Up a Thin Credit File?
Consumers with thin credit files may feel like they’re stuck in an impossible catch-22 situation: To¬†fatten up a thin credit file, you must have access to credit‚ÄĒbut it’s difficult to get access to credit when you have a thin file. But all is not lost. It is possible to¬†build and improve your credit file. Just like going from having no muscles to being a bodybuilder, it takes time to beef up a credit file. Here are a few ways you can begin building a robust credit history:
  • Apply for a secured credit card.¬†Secured cards¬†require you to put down a deposit, which typically acts as your credit line. Because the credit line is “secured,” credit card issuers are more willing to provide these credit cards to those with little or adverse credit history. The issuer will usually report your payments to one or more of the credit reporting companies, helping you build credit
  • Get a¬†credit-builder loan.¬†With these loans, the lender puts the loan amount (usually $300 to $1,000) into a savings account. You make fixed payments toward the loan, and once you reach the end of the term, the lender will return the balance to you, possibly with interest. Check to make sure the lender reports your payments to the credit bureaus before agreeing to the loan.
The Bottom Line
Fattening up a thin credit file may help you obtain financing and other services you need. But adding accounts to your credit report is only the first step‚ÄĒthe most important factor in building a positive credit history and good credit scores is to manage your credit accounts responsibly. Do so by always paying all your bills on time, keeping credit card balances low and applying for credit only when you need it.
Once lenders can see you know how to manage credit accounts, you could find yourself with options for low-interest loans, rewards credit cards and more. As you take on new accounts and build your credit profile, you can monitor your credit for free with Experian to watch your credit history grow.