Did you know that some people have no credit scores? If you don’t have much information on your credit reports, or if you haven’t had a loan or credit card in a long time, you may not have a credit score. This is also known as having a thin credit file.
According to the Consumer Financial Protection Bureau (CFPB), 9.8% of adults have no credit scores because their credit files are too thin. If you belong to this group, you will find it difficult, or even impossible, to do things like borrow money or rent an apartment.
What can you do to fix bad credit? As a financial educator and former NFCC Certified Credit Counselor, I’ve helped tons of people resolve credit problems like this. Read on to find out how I recommend creating a more complete credit file.
Having a thin credit file means that there is not enough information in your credit reports to calculate your credit score. This is also known as “non-scoring.” If you have a thin credit file, it is for one of two reasons:
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Insufficient credit: There is not enough information in your credit reports to calculate a score. For example, the accounts that are reported do not show enough payment information. This could happen if you only have collections accounts on your reports or if you just opened your first credit card or loan. To have a FICO score, you need at least one account reported during the previous six months. For VantageScore, you only need one month.
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obsolete credit: The information in your credit reports is too old to be used in calculating your credit scores. If you have not been reported any payment activity on a credit card or loan in the last six months, you will not have a FICO score.
According to CFPB findings, 3.9% of all American adults have poor records due to poor credit, while 5.9% have outdated credit.
Keep in mind that having a thin credit file is not the same as having “invisible credit.” You are considered invisible credit if you do not have a credit report from any of the three credit bureaus (Experian, Equifax, or TransUnion), usually because there are no records that you have used consumer credit in the past.
Having a thin credit file can be just as frustrating as having bad credit. Your lack of credit score will make it difficult, if not impossible, to qualify for affordable loans and credit cards.
In fact, when financial emergencies occur, people with limited credit files are more likely to apply for high-cost loans, such as payday loans or cash advances. Unfortunately, these “solutions” can only make an emergency worse. While personal loans have an average APR of around 11%, payday loan rates are typically around 400%.
Other challenges you might face with limited credit include difficulties getting approved for apartment leasing and problems getting hired for jobs that require credit checks.
According to the CFPB, there are several demographic groups with disproportionately high credit saturation. They include:
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People with low income: The lower your income, the more likely you are to have a thin credit file. Living in a low-income neighborhood can also be an influencing factor.
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Minority groups: Black and Latino consumers, who have historically been denied access to financial systems, are more likely than white consumers to have thin credit files.
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Southern residents: People who live in the South are more likely to have thin records than other American adults. The state with the highest percentage of non-scoreable residents is Mississippi.
Read more: This map highlights the average credit score in each state
The key to building your credit file is adding new information to your credit reports. I recommend starting from the top of this list and working your way down until you find one or more options that can help you increase your file volume:
There is a chance that you may have a reduced credit file due to an error. For example, if you have a family member with the same name as you, some of their credit accounts could have ended up in error on your credit reports.
To find out if you have any errors on your credit report, you can get your free credit reports at AnnualCreditReport.com. You have the right to dispute errors and omissions on your credit report free of charge and to have them fixed.
If you open your own loan or credit card, it may take six months or more before you get your first credit score. Instead of waiting so long, get the push from your spouse or another family member.
How can they help you? If they have good credit, ask them to add you to one or more of their credit cards as an authorized user. This only takes a few minutes, but once you’re added, your credit card account will appear on your credit reports. And you don’t need to use the card for this strategy to work.
Read more: How to Build Your Children’s Credit Before They Turn 18
If you don’t have a family member who can add you as an authorized user, I recommend checking with your local credit unions to see if they offer a secured credit card.
These cards are designed for people with bad credit or no credit; You make a relatively small security deposit up front, which serves as your line of credit. If you consistently pay your bill on time, you may be upgraded to a traditional card in the future.
Another financial product created to help people with credit problems is a credit builder loan. Instead of receiving the money up front, the loan amount is held in a savings account while you make fixed monthly payments over a set term (usually six to 24 months). Each payment is reported to the credit bureaus, which helps establish a positive payment history. Then, once the loan is paid off, the funds are released to you.
Store credit cards, or retail cards, are credit cards that you can only use at a retail business. These products are easier to qualify for than regular credit cards, but they should be used with caution. Store cards are known to increase customer spending on non-necessary items and most of these cards have interest rates over 30%.