Thin File – Understanding a Thin Credit File

A Thin File is a person’s credit report with very little or even no credit history. People who are new to the market and have never borrowed money or used the luxury of a credit card are thought to have “thin” files. A thin credit file indicates that you have bad credit history for a credit agency to compute your thin credit file credit score.

Is having a thin credit history bad credit?

It’s critical to understand the difference between terrible credit and thin credit. A delinquent payment or other unfavorable notation on a person’s credit record is bad credit. Thin credit refers to a lack of a credit card account, regardless of whether monthly payments were paid on time or not.

Credit bureaus collect data about individuals’ credit usage to create credit reports for them. This credit report contains details about how much the person borrowed and whether they’ve made payments punctually can be used to determine their credit score. Prospective lenders can also scrutinize it to assess their creditworthiness.

A weak credit report could make it challenging to secure credit or be accepted for secured loans, as it provides lenders with very little data to assess the applicant’s creditworthiness. To circumvent this problem, lenders may look at other data when making decisions.

Without evidence that you have a history of adequately managing credit, such as making on-time monthly minimum payments and keeping your credit usage low, lenders may consider you dangerous and refuse to accept you for a loan or credit card.

And, if they’re prepared to take the risk, they’ll probably charge you a higher interest rate in return, which, depending on the size of your loan, may add thousands of dollars to the total cost.

How to Build Credit with the help of a thin file?

You have various choices if you’re in the middle of a file and would like to get a loan. 

Ask the Lender

As it’s based on the actions you’ve already completed in the past, the easiest is to ask the lender to look into those payments that aren’t usually reported to credit bureaus, for example, rent and utility bills. 

Suppose you’re seeking a mortgage for your home, for instance. In that case, Fannie Mae says lenders can create a nontraditional credit background for you by combining your bank statements, canceled checks, bills that are marked as paid, and reference letters from landlords and creditors.

Secure Credit Card

Another option that will require more effort and time is getting a credit card and creating a solid and positive credit history.

If you do not have a credit background, the only option you can get is a secured card. A secured credit card will require the cardholder to deposit the amount to the lender (security deposit), which can then be used as your credit line, which is the maximum amount you can credit to the card.

It is essential to have a secure credit card that can report your credit card transactions to the three major Credit Bureaus: Equifax, Experian, and TransUnion. 

Remember to make your payments in time. If you don’t, you’ll end up with an unprofessional credit record. Make sure you choose secured credit cards with lower or no annual cost.

If you’ve had a chance to use secured credit cards for a few months and your credit record is no longer as thin, you might be eligible for a traditional credit card. At that moment, you’ll most likely have built up a credit score too. According to Experian’s website, “Credit accounts typically need to be at least three months, and possibly more than six months inactivity before when they can be used to determine the free credit scores.”

Wait six months after establishing a new line of credit before applying for another. It takes time to build credit. Seek assistance from someone with an excellent credit rating.

You may accomplish this by adding yourself as an authorized user on their credit account or having them co-sign a credit line with you. Remember that skipping a payment or incurring an unexpected expenditure may harm their credit as much as yours. Only agree if you can make the payments.

What Can You Do With A Credit File That Is Too Thin?

You may start reporting credit activity and terminate your thin-file by using secured credit cards, credit builder loans from credit unions, and even low credit limit unsecured credit cards.

Also, you may use additional payments you make to specific sorts of organizations regularly to boost your credit score. You may use a credit bureau tool to keep track of your on-time payment history for bills.

However, many of the same lenders that deal with low-credit consumers may also help no-credit borrowers. It all depends on the lender and if they’re ready to examine factors other than credit ratings, such as income.

There are options available if you have a poor credit history and need to improve your credit for loan qualification. Consider obtaining a secured credit card, opening a shared credit card or bank account, or obtaining a loan with the help of a cosigner.

Credit Scoring Model

The majority of credit scoring models require at least two credit accounts. These accounts must be active on the credit report to calculate a credit score.

Between three and six months before the date of due, lenders typically inquire about payment activity. If you’ve got a thin credit history, lenders may not be able to determine a credit score when analyzing your application.

What is a Credit Builder?

A credit builder loan is a kind of loan for persons who have a poor credit history. They may utilize them to start constructing a credit history, which will help them improve their credit ratings.

You may qualify for better terms on a credit account, a car loan, or other types of finance if you raise your credit score sufficiently. You don’t need perfect credit to get approval for these loans; all you need is the ability to pay them back. They operate by placing funds into a bank account and borrowing funds from it while repaying the loan.

A credit builder loan may help you get more significant credit limits on a future credit card account, a lower interest rate, or better overall conditions.

Shop around. Compare loan conditions and rates from a bank or credit union, or internet lender before taking out a credit-builder loan. This might assist you in locating the loan that best meets your requirements.


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