Is a Thin Credit File Holding You Back?

by Brittney Myers | Updated July 21, 2021 - First published on May 2, 2021

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Millions of Americans have a thin credit file. Read on to learn how to build your credit history.

In the credit world, you need a credit history in order to get credit and to qualify for the best rates.

Your credit history is what lenders and credit scoring models use to determine your creditworthiness. That is a fancy word for how risky lenders think it would be to loan you money. A long, positive credit history equates to a high level of creditworthiness and a low level of risk.

Consumers with little or no credit history are considered to have thin credit files. This means you don't have enough credit history for lenders to judge your credit risk. Just as a thin job history can make it harder to get a new job, a thin credit file can make it difficult to get approved for new credit.

The drawbacks of a thin credit file

If you're an optimistic person, you like to think the best of folks. So you're likely to give new people the benefit of the doubt. Lenders are not optimistic entities. That's why they rely on credit reports and credit scores.

When you apply for a credit card or a loan, the lender will run a credit check to look at your credit history. They want to make sure that if they lend you money, you'll pay it back on time. Unfortunately, if you don't have enough credit history for the lender to estimate your creditworthiness, they'll generally lump you into the high-risk category by default.

Lenders don't like risk -- at least, not unless you make it worth their while. As such, higher risk customers are usually stuck paying higher interest rates and more fees to help offset that extra risk. That is, of course, if they approve you at all; a thin credit file may mean your application gets rejected.

Building credit history takes time

So how much credit history do you need? In general, you'll need at least six months before you lose the thin-file designation. That's how long it takes to qualify for a FICO® Score. This is a three-digit number issued by the Fair Isaac Corporation, which is the most commonly used credit scoring company.

That said, the longer your (positive) credit history is, the better off you'll be. For one thing, lenders will look at your payment history going back years. The more payment history you have, the better you look. Additionally, a long, positive payment history can help make up for the occasional mistake.

Furthermore, the actual age of your credit history is a part of your credit score. Scoring models look at both the age of your oldest credit account, as well as the average age of all of your credit accounts.

The best way to establish credit

In the job market, there are entry-level jobs specifically designed to help you build your work history, unlocking bigger and better jobs. The credit industry also has its version of entry-level products that are meant to help you build credit.

One of the easiest ways to establish and build your credit history is with a starter credit card.

If you're a college student, then student credit cards can be a great way to start building credit. Most student cards have no annual fees, and they'll often offer rewards and other perks.

If you're not a student, consider a secured credit card. While secured cards do require a cash deposit to open, you'll get that deposit back as long as you keep your account in good standing and pay your balance on time every month. After six months or so, you should have enough credit history to upgrade to a better card.

Of course, the key word in all of this advice is "positive." Having a thin credit file is actually better than having a bad credit file. So, be sure to use your new credit card -- or any other credit account you open -- responsibly. Pay your bill on time every month, don't open too many new accounts all at once, and make sure you never take on more debt than you can repay.

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