I Have a Thin Credit File. What Does That Mean?


If you’ve just started building credit, there’s a good chance you have what’s known as a thin credit file. A thin credit file can mean you are new to the credit world, but even someone who has had a mortgage for 30 years can have a thin credit file if they haven’t opened other credit accounts or had any negative collection actions taken against them for unpaid bills.

You may have a thin credit file if you are young and just opened your first credit card account; if you are new to this country and just learning how to establish credit in the U.S. system; or if you are older and you haven’t used credit for a very long time. You also may have a thin credit file if you prefer not to borrow and use very few credit accounts.

In this article, we’ll explain how having a thin credit file can affect your ability to apply for credit and what you can do to change it.

What’s a ‘Thin’ Credit File?

Not really. As the Consumer Financial Protection Bureau pointed out in a recent paper, “consumers with limited credit histories reflected in the credit records maintained by the three nationwide credit reporting agencies (NCRAs) face significant challenges in accessing most credit markets.” That’s because credit records are often used when making decisions on whether to approve a loan application, especially when those decisions are based on scores issued by FICO or VantageScore. These scores also help determine how your interest rate will be set. “If a consumer does not have a credit report with one of the NCRAs or if the record contains insufficient information to assess her creditworthiness, lenders are much less likely to extend credit,” the bureau notes. This can impact your ability to apply for a home loan, credit card, rental apartment and much more.

How to Build Credit With a Thin Credit File

To improve your thin credit file, the absolute minimum you need is a credit account that has been open for six months and a credit account that has been reported to a major credit reporting agency. The national credit reporting agencies are Experian, Equifax and TransUnion, and if you have an account that is reported to one or more of these credit reporting agencies, you are on your way to establishing credit.

Choosing a credit card that is reported to all three credit reporting agencies is helpful for credit building, along with the credit-building essentials that apply to everyone, even those with robust credit files. And since payment history accounts for 35% of your credit score, making on-time payments on a credit card or loan account for a year or more will help you establish a solid record.

It’s a good idea not to apply for too much credit at once, as doing so can hurt your scores. We recommend waiting to apply for new credit until your previous account or accounts have been established for a while. We also advise keeping your balances, or debt levels, in check. Maxing out a credit card can do serious damage to your credit score, and experts say for best scoring purposes it’s wise to keep your balances to 35% of your total available credit limit, or ideally 10%.

Once you have one or two credit accounts with a solid record of on-time payments, you may wish to apply for a car loan, a personal loan, a new credit card or even a mortgage to continue building your credit history. This is fine, but remember not to apply for too many at once, as lenders may see this as a sign you can’t manage your credit responsibly.

Keep in mind that if you apply for a new credit account, it’s best to keep your previous credit cards open and active — even if it’s just making one purchase per month — to maintain your account age, which is another important factor that goes into your score.

As you work on building your credit, do try to make sure that your credit reports are accurate and kept up to date. If something seems off, don’t hesitate to reach out and have it corrected. You can learn more about drafting a dispute letter to the various credit agencies, which is the first step in correcting credit report errors.