What is a thin file?
A “light file” refers to the credit report of a person with little or no credit history. Newbie consumers who may never have taken on a credit or never had a credit card would have fine records.
Key points to remember
- It is said that a person with little or no credit history has a slim record.
- Having a thin file can make it difficult to borrow money or get a regular credit card.
- One way to build a credit history is to get a secure credit card and make payments on time.
Understanding a thin file
Credit bureaus compile data on credit usage by individual consumers to generate a credit report on them. This credit report, which includes information on how much the person borrowed and whether they paid their bills on time, is used to calculate their credit rating and can be examined by potential lenders to determine their creditworthiness.
Having a thin file can make it difficult to obtain credit or loan approval, as it gives lenders very little information with which to judge a person’s creditworthiness. To work around this problem, some lenders will take other information into account when making their decisions.
How to build credit with a thin file
If you have a thin file and want to borrow money, there are several options available to you. The easiest way, because it relies on actions you’ve already taken, is to ask the lender to account for payments that aren’t usually reported to credit bureaus, such as utility bills and rent. If you are applying for a mortgage, for example, Fannie mae says lenders can build a credit history for you, using a combination of your Bank statements, canceled checks, invoices marked as paid and letters of reference from creditors and the owners.
Another option that takes more time and effort is to get a credit card and start building a solid credit history. If you do not have a credit history, the only type of card available to you may be a secure credit card. A secured credit card requires you to deposit a sum of money with the lender which will then serve as a line of credit, the maximum amount you can load onto the card.
Make sure you get a secure credit card that will report your payments to the three major credit bureaus: Equifax, Experian, and TransUnion. Also, don’t forget to pay your bills on time. Otherwise, you will have a bad credit history. Finally, look for a secure card with low or no annual fees.
After you’ve used a secured card for a while and your credit history isn’t so bad, you may be eligible to apply for a conventional credit card.
By then, you will likely have established a credit score as well. According to Experian, “Accounts generally need to have a minimum of three months and maybe up to six months of activity before they can be used to calculate a credit score. “