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What Is a Thin Credit File and How Will It Impact Your Life?

While many of us want to slim down our physical forms, there's one thing that's better off when it's fat: your credit file. In fact, when you don't have a robust credit history, that's known as a "thin credit file"—and it can hurt your chances of accessing credit or loans at the best rates, or at all.

What Is a Thin Credit File?

Some 62 million Americans have what is known as a "thin credit file." That means they have few (if any) credit accounts listed on their credit reports, typically one to four. (Credit reports are maintained by the three credit reporting agencies: Equifax, TransUnion, and Experian, the publisher of this blog.)

About 26 million Americans are known as "invisibles"—they have no credit accounts on their credit reports at all.

Generally, a thin file means a bank or lender is unable to calculate a credit score because there is not enough information in a user's credit history to do so. (Note: About 26 million Americans are known as "invisibles"—they have no credit accounts on their credit reports at all.)

Who Is Most Likely to Have a Thin Credit File?

You could have a thin file if you are young and new to the credit world; a new immigrant who hasn't established a credit history in the U.S. yet; are elderly and haven't used credit in a long time; have been recently widowed or divorced; or if you shun credit and mainly use cash.

The Consumer Financial Protection Bureau notes in a recent study that Hispanics and African Americans, as well as people who live in low-income neighborhoods, are disproportionately impacted by thin credit files.

What Are the Consequences of a Thin File?

A thin credit file can make it very difficult to access any kind of credit, including the ability to buy a home with a mortgage or start a business with a loan. That's because most lenders in the U.S. rely on information in a credit report, along with credit scores issued by FICO®, VantageScore® or other score developers. When there is not enough information in the report, lenders are unable to determine how creditworthy a consumer is.

As a result, a consumer with a thin credit file could be denied credit altogether, or possibly only get access at very high interest rates, which can be very costly over the lifetime of a loan.

How Do I Fatten up a Thin Credit File?

Consumers with thin credit files can often feel like they're stuck in an impossible catch-22 situation: In order fatten up a thin credit file, you must have access to credit—but you can't get access to credit because you have a thin file.

But all is not lost. It is possible to improve your credit file. Just like going from having no muscles to being a bodybuilder, it takes time to beef up a credit file. There are several ways to establish and build credit, including starting with a secured credit card or applying for a credit-builder loan. For more information on how, check out how you can fatten up your thin credit file.


Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer, or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.
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