What is a thin credit file and how do you fix it?

You pay your bills on time, you don't have any credit card debt, and overall, you consider yourself fairly responsible when it comes to spending. You're ready to apply for business credit cards or small business loans to help you get your future business off the ground and, all of a sudden, you hit a roadblock. 

Your application is denied and, when you look into it, you find that you have a "thin credit file," or too-little credit history to qualify.

Despite the setback, there is some good news. You can likely fix it with the right steps.

Learn what you can do if you have a thin credit file.

What does it mean to have a thin credit file?

A thin credit file refers to a credit report that does not contain enough recent or active accounts to calculate a credit score.

It isn't the same as being “credit invisible” where you don’t have a credit file at all. But those with thin files and those who are credit invisible can both have trouble getting approved for loans and credit cards. 

Personal scores

According to the Consumer Financial Protection Bureau, approximately 9.6% of adult Americans (about 24.8 million people) in 2020 did not have a scoreable personal credit report.

Your personal credit history is made up of account data that is transmitted from lenders or financial institutions to the major personal credit reporting agencies: Experian, Equifax, and TransUnion. 

It often includes payments for:

• Mortgages
• Student loans
• Auto loans
• Consumer credit cards
• Personal loans

If you don't have a mortgage or student loan, if you bought your car outright or paid it off so you don't have a car loan, and you haven't actively used a credit card, there may be little to no information being sent to the credit reporting agencies. Again, too little information about your credit payments can make it difficult or impossible to calculate a credit score. 

Business scores

Business owners can have thin credit files too. Whether your business has good credit or bad credit depends largely on your business's payment history. 

Your payment history comes from accounts that report like vendors and financial institutions (like banks or credit cards) that report to the major business credit bureaus such as Dun & Bradstreet, Equifax, and Experian.

There are three main reasons you might have a thin business credit file:

1. You don’t have any accounts that report: Even if you have business tradelines like business credit cards or net-30 accounts, they may not report to any or all of the business credit bureaus. 
2. You don’t have enough reporting accounts: You may need 2–3 accounts before a business credit score will be created with each bureau.
3. You have too little or too infrequent reporting: If significant time has passed since you had an active account of any kind, reported information may be too old or may no longer appear on your credit reports

There are also two less frequent situations that may also lead to credit invisibility or thin files:

• You're mistakenly documented as deceased: In some bizarre cases, the credit reporting agencies may think you're deceased. In this case you'll need to contact the agencies or file a dispute and likely provide documentation to prove you are still alive.
• You have a split file: This could happen if you move or change your name frequently. Information may be associated with multiple credit files. If you've determined this to be the issue, you'll need to contact the reporting agencies and request that they merge your accounts.

Why a thin credit file is a problem

A thin credit file creates challenges that extend beyond just getting loans or credit cards. The impact can reach into many areas of your financial life:

Renting a home 

Landlords often check credit reports before approving rental applications. Without sufficient credit history, you may have to provide larger security deposits or find a co-signer.

Insurance

Many insurance companies use credit-based insurance scores to set premiums. A thin file can result in higher rates for auto, homeowner, or renters insurance.

Utilities

Electric, gas, water, and internet service providers may require deposits from customers who don’t have a strong established credit history.

Employment

Some employers perform credit checks as part of their hiring process. If they can’t find a credit report, there may be a concern about whether you are who you say you are. 

How a thin file can affect business owners

For business owners specifically, a thin credit file can affect your company's ability to grow in several ways: 

1. Business financing

When you apply for a business line of credit, equipment financing, or another type of loan, you may not qualify. If you do qualify for new credit, your terms may be worse with higher interest rates and shorter repayment periods.

2. Vendor relationships

Net-30 terms can help your business get important supplies or services and pay later. But those suppliers want confidence that you'll pay them back on time. Without an established credit history, you may face higher interest rates, shorter payment terms, or cash on delivery requirements.

3. Credit limits

The total amount of credit you can access may be lower than they would be if you had good credit. 

4. Contracts

Some companies use business credit to try to determine whether a company has the financial capacity to handle a major project as a contractor or supplier. A lack of credit history may mean you miss out on these opportunities. 

Can you have a good credit score with a thin file?

While it is possible to have a good credit score with just a few credit references, it is hard to have a good score if you truly have a thin file.

Some credit scoring models (such as VantageScore^® 4.0, for example) specifically analyze reports to try to produce a credit score for consumers with few references. So it is possible to have a good score with not many accounts reporting. 

And keep in mind that a thin credit file can affect your business even if your credit score is good. Lenders look at more than just your score. They may want to see a track record of managing different types of credit over time.

How to fix a thin credit file

The best way to address a thin credit file is by actively building good credit. You don't have to take on unnecessary debt or make major life changes like buying a house or car to have good credit. 

Instead, focus on building credit from scratch through these popular and proven methods:

1. Become an authorized user

Becoming an authorized user on someone else's credit card can allow you to benefit from their positive payment history being reported to the credit bureaus. You don’t even have to use the card. This strategy works best with a trusted family member or friend who can show you that they always pay on time and keep their balances low.

If the issuer reports their account to major credit bureaus, they will report the full account history under your name, noting you are an authorized user. Many people have found this to be an effective way to add a longstanding account to their credit profile. 

But you need to understand that if the primary cardholder's payment habits deteriorate, it could negatively impact your credit as well.

This strategy is less helpful when it comes to business credit cards. Many of them allow you to add employees but that won’t help them build business credit. (Your business is not likely their business, after all.) 

2. Get a secured credit card

A secured credit card can also be an effective tool for building credit from scratch. It requires you to pay a cash deposit when you open the account, and this deposit typically becomes your credit limit. The security deposit makes it less risky for the card provider and increases the likelihood you'll get approved.

The key is choosing a secured card that reports to all three major credit bureaus: Experian, Equifax, and TransUnion. Not all secured cards do this, so research before applying. Your deposit amount usually equals your credit limit, though some cards may offer higher limits for larger deposits.

Again, you can likely establish credit without paying interest. 

You can use your card for small, regular purchases you can easily pay off each month. Pay the full balance before the due date to avoid interest charges (if the card has a grace period as most due) and build a positive payment history. 

After a period of on-time payments, some issuers will consider converting your secured card to an unsecured card and refunding your deposit.

3. Take out a credit builder loan

A credit builder loan works differently than traditional loans. You essentially make monthly payments toward a savings account. You’ll receive the funds when you reach your savings goal or close the account, whichever comes first. 

If your payments are reported to the credit bureaus throughout the loan term and you pay on time, you can help establish your credit history. 

Depending on your goals, you may want to get a consumer credit builder account or a business credit builder account. 

4. Use Experian Boost

Experian Boost is a program by Experian that allows you to add utility, phone, and streaming service payments to your Experian credit report. While this won't help you build credit with all three credit bureaus, it may help improve your Experian profile and potentially improve your FICO score when obtained by lenders in conjunction with an Experian credit report.

This free service connects to your bank account and identifies eligible payments you're already making. It then adds these payments to your credit file, allowing financial obligations that typically don't appear on credit reports to be included in certain credit score calculations.

Build a business credit history

The major credit bureaus for business credit are Dun & Bradstreet (D&B), Equifax, and Experian. Lenders can check your business credit before they will loan your business money. Some lenders check personal credit, some check business credit, and some check both. 

Credit accounts that appear on business credit are called business tradelines. Accounts that may help you build business credit include: 

• Net-30 accounts that allow you to buy supplies or services for your business and pay in 30 days. Many do not check personal credit. Use Nav’s net-30 list to find vendors that may report. 
• Most business credit cards report to one or more major business credit bureaus. While strong business credit isn’t usually required to qualify, most check personal credit and require good to excellent personal credit scores. 
• Nav Prime gives you up to two actively reporting tradelines submitted to all major business credit bureaus.¹ 
• Small business loans may be reported to business credit, often by way of the Small Business Financial Exchange. 

Businesses may find it helpful to start with two to three tradelines, then add additional ones as needed. 

Keep in mind that not all companies report payment history, and many do not report to all three major credit bureaus. In addition, acceptance depends on credit bureau policies. Results may vary.

Frequently asked questions