Have you discovered that you don’t have a credit score? You may have a thin credit file, meaning you don’t have enough credit history for the three major credit reference agencies — Equifax, Experian and TransUnion — to get a clear picture of your credit and generate a score.
A thin credit file can make it difficult to get approved for a mortgage, car loan or other credit products — and if you are approved, you could pay a higher interest rate.
Read on to learn more about how a thin credit file can negatively affect you and what you can do to begin building a credit history.
What does it mean to have a thin credit file?
A thin credit file means you don’t have enough credit history for a credit reference agency to calculate a credit score.
Without proof that you have a history of making your repayments on time and keeping your credit utilisation low, lenders could view you as risky and may not approve you for a loan or credit card. And if they are willing to take on the risk, they’ll likely charge you a higher interest rate in exchange, which could add thousands of pounds to the cost of your debt, depending on the potential size of your available credit.
Why do I have a thin credit file?
Here are some reasons why you may have a thin credit file.
You’ve never had credit
If you don’t have any lines of credit listed on your credit reports, like a credit card, mortgage, car loan or any other kind of loan, a credit reference agency may not be able to generate a credit score for you. This may be the case if you’re recently divorced or widowed and your spouse put all utilities, loans and credit cards in their name. You may also have a thin credit file — or no credit file at all — if you recently moved to the United Kingdom from another country.
You’re new to credit or reestablishing credit
If you’ve recently opened your first credit card or loan, don’t expect to have a credit score right away. It takes time to build your credit history and develop a score. In the meantime, there may be very little information in your credit file.
The credit reference agencies think you’re deceased
It seems weird, but it happens: Credit reference agencies can mistakenly believe you’ve passed away. Deceased people don’t have a credit score, so you might be told you have a thin file if that’s what the reference agencies think. Unfortunately, correcting this can be a lengthy, time-consuming process.
Your credit file is split
Like a credit reference agency mistakenly thinking you’re dead, a split file is an outlier. Split files rarely occur, but when they do it’s often because there’s a lot of information on your report or your personal information, like your name and address, have changed frequently. Both causes can lead to a single credit reference agency having multiple credit reports and a credit score on file for you, each with different information about the financial institutions you bank with and the financial products you use. If your information is being split, it could potentially lead to a credit reference agency trying to generate a score for you based on very limited information.
How can I fix a thin credit file?
Here are some ways you can begin to build credit and fix any errors on your credit reports.
Credit-builder loan
One option is a credit-builder loan, a type of loan where the lender offers you funds that are deposited into an account held by the lender. You’ll then make monthly payments to pay off the loan. You’ll be able to use the funds — minus any fees and interest — after you pay the loan back. Take a look at the product offers on our marketplace and see if one of these could be a good fit for you.
Report and dispute credit report errors
If you think you’ve been marked as deceased, have a split file or find other errors on your credit reports, contact the credit reference agencies directly and notify them of the mistake. You can also file a dispute. To dispute any information on your credit report, you typically need to provide information such as your full name, current mailing address, National Insurance number, birthday, a written statement explaining the error and any supporting documents.
In the case of a split file, first check that your information is actually being misreported by obtaining your credit reports from each of the three major credit reference agencies and comparing them. If it’s clear from this comparison that one of the companies has accidentally split your file, you can then contact that credit reference agency directly to have your reports merged.
Credit builder credit card
Credit builder credit cards are designed for people who want to build or rebuild credit, so your lack of credit history may not be an obstacle to approval. These cards usually have low credit limits and a high APR (Annual Percentage Rate) to start with. This helps reduce the risk to lenders if you can’t pay back the money you borrow.
Because these cards are aimed at helping people who need to build up credit history from scratch, it’s likely you’ll have to do without some of the promotional features and rewards you find on other credit cards.
Making consistent, on-time payments and keeping your credit utilisation rate below 25% can help you build your credit. Also, consider annual fees and other card terms to help make sure you can afford the card.
What’s next?
A thin file may make you feel discouraged, but taking the steps to dispute any credit report errors and to build your credit could pay off. Improving your credit score may help increase the likelihood of being approved for a loan or credit card, and could result in better rates and terms, potentially saving you thousands of pounds.