What does it mean to have a thin credit file?

If you’re new to credit, use mostly cash, or haven’t used a credit card in a long time, you may have a thin credit file. That means you have few or no credit accounts listed in your credit reports. In some cases, a thin credit file can make it difficult to generate your credit score. And if lenders can’t see your credit score, they might not be willing to extend you credit.

But the situation isn’t hopeless. There are ways to add to your credit file, putting you on the path toward better access to credit cards, loans and other forms of credit.

If you have a thin credit file, you have few or no credit accounts on your credit reports. For example, you may have one credit card and one loan listed in your credit reports. Equifax®, Experian® and TransUnion® are the three major credit bureaus that create credit reports for consumers. 

If you have a thin credit file, you’re not alone. According to Experian, in 2018, about 62 million Americans had thin credit files. People with thin credit files may include:

• Young people who are new to credit.
• Immigrants who don’t yet have a U.S. credit history.
• Those who’ve got a few credit accounts that aren’t active.
• People who’ve gone a while without using their credit.
• Consumers who pay for things mostly with cash, not credit.

If you’re one of the millions of Americans with a thin credit file, you could run into problems accessing credit you might need. That’s because lenders usually depend on information in your credit report, along with your credit score, to decide whether to approve your credit request.

Without enough information in your credit report, a lender might reject your application for a mortgage or credit card, for example. Or if you are approved for credit, you might have a higher interest rate.

You can take several steps to beef up a thin credit file. Here are five of them.

One way you could improve a thin credit file is to apply for a secured credit card. It’s an option to consider for anyone who’s establishing, building or rebuilding their credit.

To obtain a secured credit card, you generally must deposit money with the credit card issuer to open the account. This is called a security deposit. It’s similar to a security deposit required to lease an apartment, for example. The deposit is usually refundable. But credit card issuers have their own policies for when and how it’s refunded.

It takes more than a cash deposit to get a secured credit card, though. The issuer must also approve your application.

Other than the security deposit, a secured credit card works just like a traditional, unsecured credit card does. You can use it to make purchases in person or online, within your credit limit.

A secured card is just one credit card option for people with less-than-perfect credit. Students who are interested in building their credit may want to consider student credit cards.

A credit-builder loan is another option for improving your credit file. 

It differs from a traditional loan in one major way: If you’re approved for a traditional loan, you receive the borrowed money upfront and pay it back over time. But if you’re approved for a credit-builder loan, you must wait to receive the borrowed money.

The lender of a credit-builder loan deposits the loan amount into a locked savings account. During a fixed amount of time, you make monthly payments toward the loan. Once you’ve wrapped up the payments, the lender releases the loan amount to you while taking into account any interest or fees.

The lender typically reports your monthly payment history to the three major credit bureaus. And the credit bureaus might include this information in your credit file, which can help you establish a credit history.

Another way to boost your credit file is to have a co-signer. The co-signer vouches for you, telling the credit card company that if you can’t pay your bill, they will. Typically co-signers don’t get a card of their own, receive card statements or have access to the credit card account, though.

Not all credit card issuers allow co-signers. But if they do, they generally take the co-signer’s income, credit history and credit score into consideration when deciding whether to approve you for the type of credit. If the lender approves the loan, the positive or negative payment history of the loan is typically reported to at least one credit bureau. This information could then become part of your credit file.

Becoming an authorized user on the credit card account of a trusted family member or friend could also benefit your credit file when the card is used responsibly.

While you’ll be able to make purchases with your card as an authorized user, the primary cardholder is ultimately responsible for all the charges made on the account. But keep in mind that both positive and negative activity, such as making late payments, could show up on both of your credit reports.

To help ensure your credit file is as clean as possible, look for any errors on your credit reports. For instance, a credit card account could be mistakenly listed as being closed.

If something doesn’t look right, the Consumer Financial Protection Bureau (CFPB) provides instructions for disputing errors on your credit reports, which could be helpful. 

As you’re working to bulk up your credit file, you may want to monitor your credit. CreditWise from Capital One is a free tool that may let you monitor your VantageScore® 3.0 credit score if you have sufficient credit history. Using CreditWise to keep an eye on your credit won’t hurt your score if you have one. And it’s free for everyone, even if you don’t have a Capital One credit card.

You can also get free copies of your credit reports from all three major credit bureaus—Equifax, Experian and TransUnion. Call 877-322-8228 or visit AnnualCreditReport.com to learn more. Keep in mind that there may be a limit on how often you can get your reports. You can check the site for more details.