A Thin Credit File: What It Is and What You Can Do About It - American Credit Foundation



When Wallis Simpson, the Duchess of Windsor, said, “You can never be too rich or too thin,” she was obviously not talking about credit files. In fact, a thin credit file is not at all attractive, especially to potential creditors.

But how can you know if your credit file is too thin? It’s not as easy as looking in a mirror. And if yours is thin, is there anything you can do to create a more robust profile?

What is a thin credit file, and how do you know if you have one?

The term “thin credit” simply refers to a credit history with too few recent entries for credit bureaus to be able to calculate a score. The number of entries considered too few is typically four or fewer within the past six months. 

Most of us start out our financial lives with thin credit and build it up over time, so young adults make up the bulk of this “thin” crowd. But some other common conditions may also cause you to find yourself in this category: 

  • You have recently immigrated and have little credit in the US
  • You are recently divorced or widowed and most of your credit was in your spouse’s name
  • You haven’t used credit in a long time or if you have historically operated on a cash-only basis. 

Estimates show some 35 million Americans currently have thin credit – and may be unknowingly suffering from its effects. A simple check of your credit report will tell you whether or not you belong to this group. Or maybe you’ve already applied for a loan and been turned down due to little or no credit history. The good news is that beefing up your credit file can be relatively painless, if you follow a few simple steps.

What to do to improve a thin credit file:

  1. Get a Secure Credit Card

One of the easiest ways to build up a thin credit file is with something called a secure credit card. The reason these cards use the term “secure” is that you actually secure the card with your own money, typically as little as $200, that you put down up front. Then you can use the card to pay for purchases, just like a regular credit card, up to the full amount of your deposit. As you use your card and make timely payments over time, the credit card company will report monthly to all three credit bureaus, which will start filling out your credit file.

  1. Apply for a Credit Builder Loan

Another option is to apply for a credit builder loan. As the name implies, these loans are specifically tailored for people with little to no credit for the purpose of helping them build credit. The way credit builder loans work is they require you to pay the full amount, including any fees and interest, on the front end through monthly payments. Then, they pay you the lump sum on the back end. The benefit here is that monthly payments are typically very low, sometimes as little as $25 per month, and these consistent timely payments are reported to the credit bureaus. At the end of the loan term, not only will you have a lump of cash waiting for you, you will also have established a fair amount of good credit history.

  1. Become an Authorized User

If you have a close relationship with someone whose credit is in good standing, such as a partner or a parent, you could ask to become an authorized user on one of their credit cards. Because credit card activity is reported monthly for the cardholder and any authorized users, you would essentially be piggy-backing off of their good credit. It’s important to note that all activity is reported – both the good and the bad – so make sure you trust the person well and that you set up solid ground rules from the beginning. 

  1. Get a Co-Signor 

Many first-time borrowers ask a parent or legal guardian to help them get started by co-signing for a small loan. The lender will use the co-signer’s credit history to judge the worthiness of the loan, but payments will be reported to both files. Lenders consider any co-signer an equal partner in debt repayment, so if you end up defaulting on the loan, your co-signer will be on the hook for it. But if you make timely payments and generally adhere to the terms and conditions of the loan, your co-signer’s credit file will also benefit, so it can be a real win-win.

it is common to ask a parent to co-sign for loans and credit
  1. Report Rental History

Another tool that might be available to you is your reported rental history. Although they are not required by law, if you rent your home or apartment, you can ask your landlord to report your rental history to the credit bureaus. This is a great way to establish credit history for something you are already paying on a regular basis.

It is important to remember that building up your credit file takes a little time, so try not to rush the process. Also, do not try to do too much all at once. Choose one or two methods, and stick with them for at least six months. Then periodically check your credit report to track your progress. You will see your financial health improve if you stick with it.

If it’s not lack of credit, but rather bad credit, that is plaguing your credit health, some personalized financial advice might be helpful. If you would like to talk with one of our helpful counselors at American Credit Foundation, we are here to offer guidance and assistance. Give us a call, and we can help you get back on a healthy path.