How a ‘thin credit file’ can stop you getting a loan

A ‘thin credit file’ refers to when you have no or very little credit history. A thin credit file can make it difficult for lenders to assess your creditworthiness. This is because lenders rely on your history of borrowing and repayment behaviour to decide whether to lend you money.

Why you might have a thin credit file

There are several reasons why you might have a thin credit file. These include:

  • Being younger: If you’re just starting out financially, you probably haven’t had time to build a credit history.
  • Being older: As you get older you may rely on credit less. For example, repaying a mortgage in full. If you’ve not used credit recently, your credit history will be limited.
  • Recent migration: If you’ve recently moved from another country, you won’t have built a credit history in the UK yet. Sometimes people in this situation are referred to as ‘credit invisibles.’
  • Limited use of credit: If you prefer using cash or debit cards rather than credit cards, or haven’t taken out loans, your credit file history will be light.
  • Paying off past credit: Credit agreements remain on your credit file for six years. If you had a loan from sometime ago, eventually it will be taken off your file. As a result you may end up with a thin file.

Why having little credit matters

Although it may seem better to have never borrowed, this can impact your ability to be approved for credit including credit cards, loans and mortgages.

Lenders require evidence that you can repay loans. Having a thin credit file means that loan applications may be declined or lenders may charge higher interest rates or offer less favourable terms, as they don’t have enough information to judge your reliability. When managed correctly, having credit can be advantageous.

How to improve your credit file

Luckily, there are ways you can build your credit file and improve your chances of being approved for credit in the future.

  • Check your credit score: It may be useful to begin by checking what your credit score is. There are three main credit reference agencies: Equifax, TransUnion and Experian. They each have their own individual scoring methods, however this should provide you with a ‘ballpark’ figure of your credit score so that you can start building on it.
  • Pay utility bills on time: Whilst not all utility companies report to credit agencies, some do. Paying your gas, electricity, and water bills on time can help build a positive credit history.
  • Get on the Electoral Roll: Registering to vote helps verify your identity, which is a key factor in credit scoring. It’s a simple step that can make a significant difference. Learn more about why the Electoral Roll improves your credit score here.
  • Consider a Credit Union loan: Credit unions offer small, manageable loans that can help you build credit. They are often more willing to lend to individuals with thin credit files and can provide financial education to help you manage your money better.
  • Keep old accounts open: If you have any old credit accounts that are in good standing, keep them open. The length of your credit history is an important factor in your credit score.

Next steps

A thin credit file can feel like a financial roadblock, but it doesn’t have to be. Taking proactive steps to improve your credit file, can build a stronger credit history, improving your chances of getting approved for credit in the future.

Many of NestEgg’s lenders will consider an application even if you have a thin file, especially if you provide access to your spending information using Open Banking. Importantly, having a history of borrowing from a credit union will also help address any problems you might have because of a thin credit file.

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