How a thin credit file could be holding you back
With the world-wide economy on the brink of major change, many of us wonder how we would fare if we need to take out a loan to bridge the gap or get funding for a new start-up business. For many, the idea of applying for a loan seems daunting, especially when it comes to credit score. A less than perfect credit score is a problem for some people, but it’s not insurmountable. But what about those who have a thin credit file?
If you have a thin credit file, it means that there’s not sufficient credit information linked to your name to generate a realistic credit score. Often, it means that people who are great at handling their finances are turned down for loans and accounts in the future. Even if you have had a mortgage in place for a decade, you could still be considered to have a thin credit file, and that can certainly hold you back.
How a thin credit file can affect your life
Many people who have found themselves free of debt, but with a “thin credit profile” feel dum-founded by the fact that they cannot get loan approval or funding when required. Let’s take a look at how a thin credit file could be holding you (and many others) back and what can be done about it.
When you have a thin credit file, it means:
- A credit score cannot be generated for you.
- You will struggle to get approval for credit/loans.
- If you are approved for a loan, it could come with a higher interest rate attached.
- You could be considered to have a bad credit score just by having no credit score at all.
Who are those most likely to have a thin credit file?
Who is most likely to have a thin credit file? The reality is that everyone starts out with a thin credit file. Think of a school leaver who has never had an account or applied for credit. You have to start somewhere. You could have a thin credit file if:
- You have never applied for credit before.
- You had joint accounts with a previous partner and are now recently single and on your own financially.
- You don’t make use of credit cards, but rather pay for things with your debit card and cash.
- You have recently immigrated to a new country.
- You used to have credit but no longer use it. The information is now outdated to lenders and credit providers.
Three ways to grow your credit file
According to Experian, a thin credit file can have a detrimental impact on a person’s future credit applications and individuals should spend time working on growing their credit file. You can read Experian’s credit file advice here. Below are a few tips on how to grow your credit file:
Apply for a bad credit loan
You might wonder why you should apply for a bad credit loan when you don’t have bad credit. Rather, you have no credit. The thing is that a bad credit loan can work much like a credit builder loan. When you are approved for it, you can pay careful attention to paying it on time or even ahead of time, which will have a positive impact on your credit score. If you follow up your bad credit loan with another bad credit loan and handle it just as responsibly, another note will be made on your credit record, and that will bump up your credit score. You can try bad credit loans here.
Have your rental account reported to the credit bureaus
If you rent property, you can ask your rental agency or landlord to report your rent payments to the local credit bureau. If you are paying every time and on time, this will make for a good comment on your credit record and will certainly start thickening up your credit file.
Benefit from someone else’s good credit record
Credit piggybacking is something that many people do to start building their credit history. According to The Guardian, piggybacking is the chosen method of credit building for Millennials. In most instances, parents help children to build positive credit by allowing piggybacking. In such situations, you are added to a credit card holder’s account as an authorised user. As soon as you are added, the entire history of that credit card forms part of your credit profile. Say for instance you are piggybacking on your parent’s credit card. If they pay the card consistently and never default on a payment, it will reflect positively on your credit report.
Last word
If you are worried that your credit file is a little thin, try implement one of the three options above and you should start to see your credit history building positively.
