Thin File? No File? How to Build a Positive Credit History
Irecently participated on a panel for a Twitter chattitled Common Questions About Credit, sponsored by Experian. Below are some key points about building a positive credit history when you do not currently have one.
¨ “Credit invisible” means someone does not have any recorded credit history with the “Big Three” credit reporting agencies or CRAs (Experian, Equifax, TransUnion). One in 10 adults (26 million Americans) are “credit invisible” according to the Consumer Financial Protection Bureau.
¨ “Thin file” is a phrase used to describe people with a limited credit history, which makes it difficult to generate a credit score. Having a “thin file,” like being credit invisible, makes it difficult for people to get approved for credit.
¨ Young consumers who have not previously used credit and have no credit history are often credit invisible. Immigrants to the U.S. also face this challenge. Like young adults, they have no prior credit history. In addition, people who have not had credit in their own name (for whatever reason) may be invisible to lenders.
¨ Credit invisibles and consumers with thin files face financial challenges. Consumers without a credit history may not be able to access utility services without making a large deposit. It may be very difficult to get a loan, get a cell phone, or rent an apartment without a credit history.
¨ Advantages of having access to credit include: the ability to buy something or do something today and pay for it later, flexibility to make purchases and take advantage of opportunities without cash in hand, fewer hassles and expenses to rent an apartment and get service credit from utility companies, and peace of mind that you have a back-up line of credit.
¨ Ways to build a positive credit history include: apply for a secured credit card, apply for a small (a.k.a., credit builder) loan of $300 to $1,000 over 6-24 months and make timely payments, get approved for a retail store or gas station credit card as a “stepping stone” to a bankcard, become an authorized user on the credit card of someone with a positive credit history, or ask a family member for assistance as a co-signer.