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Keeping Score

What is a thin credit file, and how can you build it up?

If your credit file is ‘thin,’ that likely means you’re new to credit and have few or no accounts listed on your credit report

Summary

Having a thin credit file usually means you are new to credit. This could be because of your relative youth and inexperience with credit or, for others, how long you have been in the U.S. Fortunately, there are steps you can take to build up a thin credit file.

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In this column, we have used the term “thin credit file” often. But what does that mean exactly? And how can you fix it? Does it pay to be young and thin in credit? Let’s examine this term a little closer.

First, having a thin credit file usually means you are new to credit. This could be because of your relative youth and inexperience with credit or, for others, how long you have been in the U.S. While many immigrants may have had access to credit in their home countries, foreign credit reporting information does not translate into American credit history and is not part of what you can pack up and bring with you to the states.

A thin file can also occur if you used to have credit, but have not had any for 10 years or more. A December 2018 Experian blog post estimated that 62 million Americans fell into the thin category of persons with few (if any) credit accounts listed on their credit reports.

But before you feel too bad about being too thin, things could be worse. You could be invisible! About 26 million Americans have no credit accounts on their credit reports at all, rendering them “credit invisible.”

Check out all the answers from our credit card experts.

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How to build credit

Building up your credit is easier than building up your muscles or building up savings. There are tried and true methods for improving and building credit. Two of my favorites are secured credit cards and passbook (a.k.a. first step) loans.

Both are backed by your own money and will increase both the number of reported accounts you have as well as add to your credit mix (this is especially true of a passbook loan). Because you are using your own money to build your credit you are not building your debt at the same time. The result is a safer way add muscle to your credit report.

You could also ask to be added to a trusted someone’s existing account as an authorized user. There are people who, for a fee, will let you piggyback on their credit, but I don’t recommend that course of action. Parents and close friends or relatives are fine, but strangers are not!

Once you begin to fill in the blanks on your credit report, don’t get carried away. Only apply for new credit when you need it and when you are fairly certain you will qualify. Always pay your accounts on time and as agreed with at least the minimum payment required.

If you have past due or delinquent accounts, work on bringing those current as soon as you can and be sure to communicate with your creditor’s customer service people before they communicate with you. Lastly, try to limit revolving credit account balances to no more than 25% of your credit limit.

See related: What is a good credit utilization ratio?

How long does it take to build up a thin credit file?

For an “invisible” consumer (one with no credit accounts), there is nowhere to go from here but up. It only takes between one and three months after opening a credit account for the energetic elves at VantageScore to generate a score. FICO requires at least one account to be open for at least six months and for the account to have been updated in the last six months. This is, of course, just the beginning of building a credit file, but everyone has to start somewhere.

Credit scores range from 300 to 850, but even “invisibles” won’t start out at 300. According to myFICO.com, any score less than 580 is considered poor, while scores in the 580 to 669 range are only fair.

This may be the range that you thin credit filers find yourselves in. But how long does it take to get to the 670’s and beyond? I wish there was a simple answer to this question. In general, it can be accomplished in months rather than years. How many months is up to you.

Understanding how your score is calculated can give some insight into how you can speed up the process of moving from fair to good. The algorithm for determining a FICO score uses the following five criteria:

  1. Paying your bills on time accounts for up to 35% of your score. If you are new to credit, it will take time to build this category to its full potential.
  2. How much of your credit limit you use is worth up to 30% of your score. Try to keep your balances below 25% of your limit to maximize this portion.
  3. Length of credit history is worth 15%, but sadly it takes time to create a history. Patience is key for this one, but being added as an authorized user as noted above may help a bit in this category.
  4. Showing you can handle more than one type of credit (and payment) is worth 10%. Credit cards are great, but getting an installment loan (like the passbook type mentioned above) or perhaps a furniture loan can quickly help.
  5. Finally, 10% is based on recent credit inquiries. Only opening new credit accounts when you need them will help you here.

While the above will work for everyone, when you are thin it is especially important to do all these things right in order to build up your credit. Remember, it is much easier to establish credit beginning with an empty credit file than it is to rebuild a negative credit file.

As an example, if you have an account that becomes delinquent and you already have a thin file, you may find your score drops as much as 100 points as soon as it is reported. But it may take six months or more for your score to recover. As a side note, the same holds true for those with excellent credit scores; only those in the middle of the pack are not as drastically affected (but make no mistake, even their scores will take a hit).

See related: What happens when you miss a credit card payment?

Credit building alternatives

It used to be that all anyone could do was wait for their creditors to report their good credit behavior to the bureaus to update their credit score. Fortunately, there are now some products available to consumers that may help build credit faster.

Experian has several products in this arena, but you should know that only the score generated by Experian will be affected. Experian Boost gives you credit for your utility and cellphone bills to give your FICO score an immediate “boost.” This is a free, opt-in service that accesses your banking data to get this information. Only positive information will be reported and you can opt-out at any time.

Similarly, UltraFICO looks at consumers’ checking, savings and money market accounts data to report positive data. This program is in its pilot phase now, but will also be an opt-in service when it becomes more widely available.

If you are a renter and those payments are not reported (many are not), you can look into Experian’s RentBureau. Your rent payment is one of your largest expenses, so reporting good payment history here can be an immediate help to your score as well. You can ask your landlord if they report to the credit bureaus and if they do not, you can use a rent-paying service that will report.

There may be fees associated with rent reporting services. However, the fees are generally nominal and the value you receive by having this positive data reported may well be worth it to you and your credit score.

Remember to keep track of your score!

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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