How to fatten up 'thin' credit

"Thin credit" doesn't mean your finances have been on a diet or you need to slim down your spending. Rather, the term refers to a thin file of credit information, whether that file is a paper folder or, more likely these days, an electronic file that contains information about your use of credit.

Thin credit creates challenges when you need to borrow
Without much information in your credit file, lenders can't obtain your credit score, which is a numerical representation of your credit history. Perhaps you have only one or two credit accounts or maybe your accounts haven't been open long enough to demonstrate a track record of using credit responsibly. If you don't have enough credit items to generate at least two of the three typically used credit scores, the likelihood that you'll be able to qualify for a traditional home loan will be slight.

People who have thin credit typically have difficulty borrowing money to buy a home or for other purposes because lenders can't review their past use of credit to judge whether they are likely to repay the loan. A lack of credit history makes the loan riskier for the lender, so the borrower is likely to be charged a higher interest rate and higher costs to compensate the lender for the additional risk.

Strategies to strengthen your credit file
You don't need major credit accounts like a credit card, car loan or mortgage to establish a minimal credit history. Instead, you can get started with an installment loan from a jewelry, furniture or electronic store; a department store or gas station charge card; a gym membership or even a cell phone account that's paid monthly. After that, a car loan or a credit card is a good way to fatten your credit file.

If you have open credit accounts that you use only infrequently, you can strengthen your credit by using those accounts more often to establish a pattern of borrowing money and paying your debts. A mix of different types of credit (e.g., a credit card and a car loan) can also help to strengthen your credit history.

It's important to use credit responsibly throughout your lifetime. Never borrow more than you can afford to repay even if you want to improve your credit score. Unpaid debts don't result in better credit, and bad credit is much more onerous and burdensome than thin credit.

Other options for thin-credit borrowers
People who have thin credit also have other options if they want to borrow money. One option is to have a co-signer who has a strong credit history and who agrees to also be responsible for the loan. Another option is to make a very large down payment, which reduces the lender's risk. A steady paycheck and other assets such as a retirement savings account can be helpful as well.


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