A Thin Credit File Lowers Your Approval Odds

When it comes to credit, thin is not in. In fact, you want a fat credit file full of lots of positive information. What is a “thin” credit file and how do you know whether you have one? More importantly, how can you get a more desirable credit report?

The word “thin” is used to describe a credit report that’s either short or that doesn’t have very many accounts or both. If you’ve just recently started using credit or you haven’t opened many accounts over your lifetime, your account history will typically be considered thin.

If you’ve never had credit before or you only recently started using credit, then you probably have a thin credit file. You’ll find out for sure if you check your credit report or apply for credit and are denied.

One of the drawbacks of having a thin credit file is that credit scoring companies often are unable to generate a credit score for you. To have a credit score, you need to have at least one account that’s six months old and that’s been active in the past six months. If you have just one account that’s only three months old, for example, you won’t have a credit score.

Another problem with a thin credit file is that you can have getting approved for new credit cards and loans. The thinner your credit history, the less banks are able to judge your likelihood of repaying a credit card or loan balance. They’ll often deny you rather than assume the risk. Or, if you’re approved, you may have to pay a higher down payment or a higher interest rate than other borrowers.

Generally it’s not a good idea to open up a bunch of new accounts so you can fatten up your credit report. Opening up several accounts at one time can have a negative impact on your credit score, at least in the short-term. As your accounts age and you use them wisely, your credit score will rebound.

You may have a hard time getting a credit card to build your credit history if you’ve never had credit before. A secured credit card is often a good route to go, but it requires you to pay a security deposit typically in the same amount as your credit limit. Retail stores are known for approving applicants who have little or no credit history. Be careful with these cards since they have low credit limits and higher interest rates.

Alternatively, you can get a cosigner or joint applicant – one that doesn’t have a thin credit file – to apply with you. Generally, cosigning isn’t a good idea for the cosigner since they have to pay the debt if you can’t afford to make payments. It’s risky, but some cosigning arrangements begin and end with no issues at all.