Thin File

What Is a Thin File?

A “thin file” refers to the credit report of someone with little or no credit history. Consumers who are just starting out and may never have taken out a loan or had a credit card are said to have thin files.

Understanding a Thin File

Credit bureaus compile data on individual consumers’ use of credit to generate a credit report on them. That credit report, which includes information on how much the person has borrowed and whether they have paid their bills on time, is used to calculate their credit score and may be reviewed by prospective lenders to determine how creditworthy they are.

Having a thin file can make it difficult to obtain credit or be approved for a loan, because it gives lenders very little information with which to judge the person’s creditworthiness. To get around that problem, some lenders will consider other information in making their decisions.

How to Build Credit with a Thin File

If you have a thin file and want to borrow money, then you have several options. The simplest, because it relies on actions that you’ve already taken, is to ask the lender to consider payments that usually aren’t reported to the credit bureaus, such as utility bills and rent. If you’re applying for a home mortgage, for example, Fannie Mae says lenders can construct a nontraditional credit history for you, using a combination of your bank statements, canceled checks, bills marked as paid, and reference letters from creditors and landlords.

Another option that requires more time and effort is to obtain a credit card and start building a solid credit history. If you have no credit history, then the only type of card available to you may be a secured credit card. A secured credit card requires you to deposit a sum of money with the lender that will then serve as your credit line, the maximum amount that you can charge to the card.

Make sure to get a secured credit card that will report your payments to all three major credit bureaus: Equifax, Experian, and TransUnion. Also, remember to pay your bills on time. Otherwise, you’ll build a poor credit history. Finally, look for a secured card with a low or no annual fee.

After you’ve used a secured card for a while and your credit history is no longer as thin, you may be eligible to apply for a conventional credit card.

By that time, you most likely will have established a credit score as well. According to Experian, “Accounts usually need to have a minimum of three months and perhaps as much as six months of activity before they can be used to calculate a credit score.”