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What is a thin file?

ClearScore explains how having a 'thin file', or little or no credit history, can affect you.

A credit score can be seen as measure of your credit risk. The higher your score, the lower the risk that you pose to the lender and therefore you may seem to be a more attractive customer. However, some people don’t have a credit score, meaning there is little or no information on their credit past. These people are considered to have a thin file.

You need credit history to have a credit score

Your credit score is calculated based on your credit history – if you have always paid all your bills on time and never defaulted on debt, your score should be higher.  Conversely, if you have never borrowed, which is especially true of younger people, then you will not have much credit history meaning your score will be lower.  It may even be that the credit reference agency can’t generate a score for you at all in this case.

What lenders are looking for

If you have a thin file, lenders might be reluctant to let you borrow from them. This might seem counterintuitive – if you have never got into debt or had to borrow money, shouldn’t you be the perfect customer?

However, creditors are not looking for someone who has always had enough money to cover their expenses, but rather for someone who knows how to manage credit well. They want to make sure that you can repay your debt and if you have done so in the past, they know that you’re more likely to do so in the future.

How to build your credit file

A thin file can be frustrating because you might feel that you’re put at a disadvantage even though you have not done anything wrong. However, there are ways to build your credit, and they don’t mean taking on a lot of debt.

If you feel that you want to improve your credit score and build some credit history, one of the simplest ways is to open a credit card. You should only do this if you are confident that you can manage your borrowings responsibly. As long as you’re charging small amounts to it every month (e.g. £50), paying at least the minimum payment and keeping the account open, you will be building your credit history.  Setting up a direct debit for repayments as soon as you open the account will ensure you never make a late payment.  And every time you pay back what you owe, you are working towards good repayment history which proves that you are a reliable customer.

Your utility bills count as credit

More good news for those with a thin file is that credit reference agencies are beginning to receive information from utilities providers. This means that if you have a direct debit set up for your electricity, water or even a mobile phone contract, then they might form part of your credit history. Of course, this also means that you have to make sure to pay these on time. You can read more on our blog and also check with your utilities provider.

If you have a thin file, remember that your credit score is not set in stone. You can work on it by managing debt responsibly and you can keep an eye on it for free with ClearScore.

 

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