What a Thin Credit File Is (And How to Fill Out Yours)
Roughly 17% of American preteens are authorized users of their parent’s credit card. That’s 17% of kids who are well on their way to having a better credit history than someone with a thin credit file.
That’s because their parents know how important it is to have a healthy and varied credit history. It’s no good having just one or two forms of credit in your recent history - you need to prove that you’re thoroughly capable of handling credit if you want to be eligible for the best deals, loans, products, and interest rates.
Having a thin credit file flushes your hopes of that down the drain.
It’s not a case of showing lenders that you’re unable to handle loans, it’s that a thin file doesn’t give them enough information to be confident in lending you money.
This means that you’re a higher risk client than someone with a solid credit score. In turn, that risk leads to you being either ineligible for certain loans or products, or having massively inflated interest rates to compensate for the risk.
It’s time for all of that to stop. You shouldn’t have to suffer from having a thin credit file any more, which is why we here at Grow Credit are here to help.
In this post we’ll cover:
What is a thin credit file?
Who will have a thin credit file?
What are the negatives of a thin credit file?
How to fill out a thin credit file
Aren’t multiple forms of credit bad?
The best way to grow your credit file
Let’s get started.
What is a thin credit file?
Source by allispossible, used under CC BY 2.0 license
A “thin credit file” means that your credit history does not have enough information in it for a lender to be confident in giving you money.
Typically a credit file is categorized as being “thin” if you have between one and four items in your credit history. This doesn’t necessarily mean that no lenders will consider you to be eligible for credit if you have a thin file, but it does mean that the majority will not.
Lenders need to have confidence that the money they give out will be paid back, hence why many refer to your credit score as a measure of your reliability in handling loans. This is also why your credit score takes into account how “thick” your credit file is.
It’s worth noting that having a thin credit file (and thus a minimal credit presence) isn’t the same as having no credit score. Someone with no credit history at all will be at an even bigger disadvantage, as they don’t have any kind of credit file for lenders to draw from.
Also, having a thin credit file doesn’t mean that you’re bad with credit - having a bad credit score is a completely different issue (and will typically take longer and be harder to recover from). All it means is that you don’t have enough credit on your history for lenders to be confident in your ability to pay them back.
Who will have a thin credit file?
There are typically two types of people who will have a thin credit file, and thus a lacking credit history:
Young people
People who haven’t taken out credit before
While there’s a lot of overlap and the reason behind both groups having a thin credit file is the same, not every young person will have no credit history, and some well into adulthood will have completely avoided credit.
For example, many take on student debt to fund their education, which counts as a form of credit. Combine this with having a credit card and maybe taking out an auto loan, and you can quickly have a credit file that is no longer “thin” enough for lenders to be reluctant in granting you other forms of credit.
That being said, the simple fact is that everyone who has a thin credit file has not taken out enough forms of credit to prove reliable enough to vendors. Maybe you’ve been reluctant to “go into debt” in order to build out your credit score, or perhaps you didn’t go into further education, and so don’t have a student loan on your record.
For the longest time that was me too! Despite having a student loan, I had always avoided new forms of credit, meaning that I had a considerably thin credit file. This led to problems getting approved for a mortgage, and even difficulty finding a credit card that didn’t have an extortionate APR.
There is another thing that can cause someone to have a thin credit file, that being a simple lack of recent credit being taken out.
Marks on your credit history (positive and negative) are wiped after a certain amount of time, meaning that if you go years without taking out a new form of credit, there’s every chance that your old credit history will be wiped to the point that your file thins out.
We’ll get more into the disadvantages of having a thin credit file in the next section, but the point for now is that having a thin file can be down to circumstance as much as intention. The only consistent factor is that those with a thin file have taken out very few forms of credit in recent history.
What are the negatives of a thin credit file?
The long and short of it is that a thin credit file will make most lenders reluctant to lend you money. This can apply to credit cards, personal loans, mortgages, auto loans; any form of credit that requires a credit check will suffer from having a thin file.
Once again, this isn’t the same issue as having a bad credit score. You’re not seen as being unable to pay back credit, you just haven’t proven yourself reliable in doing so. You’re an unknown in the eyes of lenders, which makes you a riskier person to lend to than someone with a storied (and healthy) credit history.
This could result in trouble being able to find a mortgage broker that will consider you, being unable to get a personal loan if you need one, or being unable to get a credit card in order to start filling out your credit file.
Even if you’re still considered for credit, it might not be the kind of credit you want to take.
Typically the lenders who will still be willing to give you a new form of credit will be doing so under higher APRs or interest rates. This means that you’ll be paying a massively inflated sum of money compared to someone who has a thicker credit file.
Remember, it’s all about proving to lenders that you (as you currently are) have the ability to pay back what you borrow. If you can do that via having a thick credit file, you’re less of a risk to lend to, and thus your interest rates and opportunities will be much better,
How to fill out a thin credit file
The best way to fill out a thin credit file is to start taking out new forms of credit. You don’t want to go wild with it - having too many forms of new credit in a short period of time will actually reduce your credit score - but you need to start building out your profile.
There’s a number of ways to do this, those being:
Taking out a personal loan
Taking out an auto loan
Taking out a mortgage
Getting a new credit card
Getting a new credit builder card
The obvious theme with all of these is that they’re all new forms of credit, most of which will require a hard credit check in order to apply for. As stated earlier, these methods can be difficult to get access to if you have a thin credit file, as you won’t have a good enough score to be eligible for the best deals on things like loan interest rates.
However, that’s where things like credit builder cards and credit builder apps like Grow Credit come in.
These are credit cards which usually have very low credit limits and often have no kind of hard credit check in order to obtain. This makes them easy to obtain and maintain even if you’re on a limited budget - you can’t borrow much money with them, so you won’t have to worry about racking up bills you can’t afford.
Aren’t multiple forms of credit bad?
We’ve all heard the horror stories of loans that people can’t pay back and getting drowned in credit card debt. Surely that means that you shouldn’t get multiple forms of credit at once, right?
Not at all!
Taking out multiple forms of credit to build your profile is only a negative if they all require hard credit checks to apply for, and/or if you can’t afford to pay back what you’re borrowing. As long as you can afford it and you don’t take out too many new forms of credit in a short period of time, you’ll be drastically reducing the amount of time it takes to start growing your credit score!
Think of it this way.
Lenders use credit score as a measure of how reliable you are in paying back what you owe. The higher your score, the more reliable you’ve proven to be, making it lower risk to lend to you, meaning that they’ll give you better offers on credit-related products, deals, and interest rates.
You want to fill out your thin credit file to grow your score, as this will prove to lenders that you can pay back what you borrow.
So why would you stifle your efforts to prove you can pay them back with just one form of credit?
Having multiple lines of credit (as long as you can afford them) will drastically increase your credit score, as it further proves your ability to manage your funds and pay back whatever you’re borrowing.
After all, your credit score is roughly 40% dependent on your credit utilization (30%) and credit mix (10%). This means that the less of your available credit that you’re using, and the more avenues of credit you have, the better your score will become.
The best way to boost both? By having multiple forms of credit that you’re utilizing very little of.
The best way to grow your credit file
Earlier I briefly mentioned how useful credit builder apps are in filling out your credit file, and there are none for which that is truer than Grow Credit.
Grow Credit is the perfect way to get a thicker credit file without worrying about going into debt. In fact, once it’s set up you don’t even have to think about it!
Grow Credit lets you manage your monthly subscriptions with a dedicated card that only accepts your subscription costs. This lets you take your regular monthly spending on services and put them all on a separate card.
In other words, it makes your subscriptions easy to manage while building your credit file and score.
You can see exactly what you’re spending every month, which makes budgeting far easier. This in turn makes it a cinch to look into other avenues of credit that you can use to beef up your credit history at the same time.
Better yet, Grow Credit is one of the only cards that allows you to manage your subscriptions for free!
This makes it one of the best ways to fill out your credit file while combining it with other forms of credit. Since Grow Credit is based entirely on what you’re already paying out for your monthly subscriptions, you don’t have to alter your habits or pay anything extra. All you need to do is keep watching Netflix or listening to Spotify as per usual.
It’s practically a free form of credit to fill out your file!
Join the Grow Credit family today and start leaving your thin credit file behind.