How to Build Up a Thin Credit File

When you’re first starting out with credit, it’s natural to have a limited amount of information on your credit report. In the credit industry, that’s called a “thin” credit file. Unfortunately, having a thin credit file can make it difficult to get approved for many credit cards and loans.

In some cases, you may not have a credit score if you have a thin credit file. You need at least one account on your credit report that’s been open for at least six months for a credit score to be generated for you. When you have a thin file, your credit score is very sensitive to the limited information you do have on your credit report. Mistakes can hurt your credit score more because there’s not much other information to use for your score. Adding positive payment history to your credit report will help strengthen a thin credit file, making it easier to get approved and giving you a stronger credit profile.

Don’t be in a rush to build up your credit. Opening on too many accounts right away can backfire and hurt your credit score. Plus, taking on too much debt before you’re ready can lead to serious financial trouble. If you’re unable to make your payments, you could end up with serious delinquencies that will damage your credit score.

Without a solid credit history, many credit cards will be off limits to you. Fortunately, you still have several options for building your credit. 

First, you can open a store credit card. These are closed-loop credit cards that can only be used in the store they’re affiliated with. Store credit cards generally less restrictive credit standards and are more likely to approve you, even with a thin credit file. Be cautious with store credit cards, they tend to carry high interest rates, which makes it expensive to carry a balance.

A second option for building up a thin credit file is to open a secured credit card. This is a type of credit card that requires you to make a security deposit against the credit limit as collateral just in case you default on the balance. As long as you make your payments on time each month, your security deposit will be returned to you either when you close the account or when the card is converted to an unsecured credit card.

The benefit of a secured credit card is that it reports like any other major credit card and can have more weight in your credit score. And because your credit limit is equal to your security deposit, you have some control over your initial credit limit. Other credit cards may only start you out with a small credit limit until you’ve proven you can responsibly handle credit.

A student credit card is another option. If you’re enrolled in an eligible school, you may qualify for one of may student credit cards. Like store credit cards, student credit cards have less strict qualifications since they’re designed for young adults without much credit experience. If you’re applying for a credit card and you’re under age 21, the credit card issuer has to verify that you have income from a full- or part-time job, scholarships, or grants. Unfortunately, you won’t be able to use allowance from a parent as income.

Finally, you can become an authorized user on someone else’s credit card. Some borrowers who are just starting out with credit simply can’t get approved for a credit on their own, or they’re not able to save up a security deposit for a secured credit card. Once you become an authorized user on someone’s credit card, the account history for that card goes on your credit report and helps boost your credit score, assuming the credit card has a positive history. You’re not responsible for any payments on the card, but you can benefit from the strong credit history. And you only have to remain an authorized user just long enough to get credit on your own, then you can start building your credit score with your own accounts.