What is a thin file?

Man using phone

A thin credit file is one that lacks information. This happens when someone has not used credit products in the past. It means there is not enough information for a potential lender to confidently assess the applicant’s ability to repay any loans.

Lenders like to see a track record of financial responsibility. They will run identity and background checks first and then they will do a hard credit search to find out as much as possible about the applicant and determine if that person is likely to be able to repay their money.

Who has a thin credit file?

Anyone who is new to the lending industry and those individuals who have only used a few credit products in the past will have a thin credit file. The most common demographic to suffer from a thin credit file is those in their late teens or early twenties. Lenders will only fund credit to people over eighteen-years-old and it can take months and even years to build up a credit history.

There are several ways you can start to build up a credit history, first of all, register on the electoral register so that you create an official record of your address. Applying for a credit card and using it responsibly can also help to build up a credit history however late or missed payments will damage any good score that you are trying to develop.

An increasing number of utility companies are using the credit agencies, so setting up a direct debit or standing order will ensure that these payments are made on time and don’t incur any bad marks.

Why don’t you want a thin credit file?

Your credit file forms the basis of your credit score and a thin file will return a low score. The higher your score the lower risk category you are for lenders. So a thin credit file can be just as negative to your lending prospects as having a poor credit history and you may  find it difficult to open bank accounts, get a credit card or any other type of lending product.

Lenders have hundreds of thousands of customers and it is easier for them to decline unknown borrowers and stick to processing those applicants that match their lending criteria better.

It is also useful to note that lenders are commercial enterprises and they need to make a profit from their lending activities. A customer who has only used credit sparingly in the past and has repaid early is not their ideal customer.

Credit for beginners – how to get a credit product with a thin credit file

Lenders know how important it is for individuals to have a credit file to obtain debt products and the banks, in particular, have recognised the industries failing to provide products for young people to enable them to start building a credit profile. As a result, the industry has developed a variety of specially designed cards and loan for new borrowers or those trying to create a credit history.

These include:

Student credit cards

These are credit cards specifically created for students. They have lower credit limits, but fewer credit terms than a typical card. Banks will offer these cards as a way of getting the student’s financial affairs after graduation.

Secured credit cards

These are credit cards that are secured by money in a savings account. Borrowers are charged interest as with a regular credit card and must make monthly payments. The credit usage is recorded with the credit agencies meaning the borrower builds their credit.

Co-signed loans

These are more often a fixed loan product. With no credit history, it is easier to get a loan if it is co-signed by someone with a high credit score. The payment history will be reported to the credit agencies but it could take several months to build a credit score sufficient to get a loan independently.

Become a cardholder on someone else’s account

This will usually be a parent. You are usually added as a fully authorised user, and the use of the credit will impact your own credit rating.

As you are bulking up your credit file, you can use Credit Angel to see what impact your actions are having on your credit score.