Understanding and Fixing a Thin Credit File

At O1ne Mortgage, we understand that navigating the world of credit can be challenging, especially if you have a thin credit file. A thin credit file can make it difficult to qualify for credit and secure the best rates and terms. However, with the right strategies, you can transition from a thin to a thick credit file, improving your financial opportunities. If you need assistance with any mortgage services, don’t hesitate to call us at 213-732-3074.

What Is a Thin Credit File?

A thin credit file is a credit report that contains few active credit accounts, such as loans or credit cards. Lenders have different criteria for what constitutes a thin file, but generally, it means having fewer than five credit accounts. In some cases, a thin file may also refer to a credit report that lacks sufficient information to generate a credit score.

For most FICO® Scores, you need to have an account that’s at least six months old and have had activity on a credit account within the last six months to receive a credit score. VantageScores® require just a credit account, collection account, or bankruptcy in your credit file to be scored, with no specific duration or recent activity requirements.

As of 2022, approximately 28 million Americans had never had credit and didn’t have a credit file, while an additional 21 million had credit files that lacked enough information to be scored by most FICO® Scores.

Who Is Most Likely to Have a Thin Credit File?

Individuals who are new to credit or infrequently use credit are most likely to have a thin credit file. These groups include:

• Young adults: They haven’t had much time to open or use credit.
• New immigrants to the U.S.: Their credit history from their home country isn’t transferred to U.S. credit bureaus.
• Older adults: They might not have open and active credit accounts anymore.
• Residents of low-income areas: They may have fewer creditworthy friends and family members to cosign loans and might rely on alternative financial services that don’t get reported to credit bureaus.
• Certain minority groups: They may have had negative experiences with credit and the financial system.

How a Thin File Affects You

Most lenders rely on your credit reports and scores to make lending decisions. A thin credit file can make it challenging to qualify for new accounts, and even if you’re approved, you might receive less favorable rates and terms. A thin file can affect your ability to obtain:

• Credit cards
• Mortgages, auto loans, personal loans, or other installment loans
• In-store financing
• Rental homes or apartments
• New utility, internet, or phone services
• Various types of insurance

Additionally, having a thin file might lead to a lower credit score. Credit scoring models categorize consumers into different subgroups before assigning a score. If you’re in the thin-file group, adding new accounts to thicken your file can help improve your credit scores.

How to Fix a Thin Credit File

Although a thin file can make accessing credit more difficult and expensive, there are ways to thicken your file. Here are some strategies to consider:

Add Alternative Data to Your Credit Reports

One option is to add payments you’re already making, such as monthly rent, phone, utility, and streaming service bills, to your credit reports. Experian Boost® is a free feature that allows you to link your bank account and add eligible payments to your Experian credit report. Other companies may offer similar services for adding bills to your other credit reports, but they might not be free.

Apply for a Secured Credit Card

Secured cards generally don’t require a good—or any—credit score. You need to put down a refundable security deposit that often determines your credit line. Some of the best secured cards don’t have an annual fee. Use the card for a small monthly payment and pay the bill in full each month to avoid interest charges while building credit.

Use a Debit-Credit Hybrid Card

Traditional debit cards don’t appear in your credit reports or affect your credit scores. However, some online-only banks and financial technology companies offer debit-like cards that can help you build credit. These cards might have low or no fees or interest rates and can be easier to manage if you’re more familiar with using a debit or prepaid card.

Ask a Close Friend or Family Member to Add You as an Authorized User

When someone adds you as an authorized user on their credit card account, the credit card company may report the account’s history and usage to the credit bureaus under your name. This can thicken your file and help your credit score even if you never use the card. However, some issuers might not report authorized-user accounts to the credit bureaus, so check with the issuer before requesting to be added. Additionally, if the primary cardholder uses a large portion of their available credit, it might hurt rather than help your credit scores.

Join a Lending Circle

Lending circles are organized groups that contribute a specific amount to a shared pool of money each month. Each member of the circle receives the funds, and the recipient changes each month until everyone has had a turn. Informal lending circles don’t affect your credit, but some nonprofit organizations create and manage lending circles that help members build their credit and savings simultaneously. If there’s a sponsoring organization in your area, you might be able to join a lending circle without paying any fees or interest.

Open a Credit-Builder Loan

You can add an installment loan to your credit reports by taking out a credit-builder loan. Unlike loans for making a purchase, the money you borrow gets locked in a separate account. Depending on the terms, you might unlock the funds once you pay off the loan, or the money in the account might be used to make the loan payments. Small banks, credit unions, and online lenders tend to offer credit-builder loans. Compare your options before applying, as you may need to pay fees and interest for the loan.

Get a Creditworthy Cosigner

If you’re struggling to qualify for a loan or receive a good rate, you could ask a close friend or family member with good credit to cosign. The cosigner might help you get the loan, but they’re also taking on a legal obligation for the debt. The cosigner’s credit could be damaged, and they could even be sued for the debt if you miss payments or default.

Monitor Your Credit as You Thicken Your File

Adding accounts to your credit report can help thicken your file, but building excellent credit takes time. The most important factor in your credit score is your payment history. Always make your monthly payments on time, use a small portion of your credit cards’ credit limits, pay the bills in full to avoid interest charges, and only apply for credit when you need it.

If you don’t have any credit accounts in your name yet, you can create your credit report with Experian using Experian Go™. You can then use the Experian Boost feature to add eligible bill payments and receive other recommendations for building your credit. Your Experian account also helps you track your progress with free credit monitoring, FICO® Score tracking, and real-time alerts when there are important changes in your credit file.

At O1ne Mortgage, we are committed to helping you navigate your credit journey. If you have any questions or need assistance with mortgage services, please call us at 213-732-3074. We are here to help you achieve your financial goals.