According to Experian, in 2008, there were at least 4 million thin credit file consumers in the UK. This means that you are not alone if you have a thin credit file, but what does it mean for you and all other people with a thin credit file?
If so many people have the same problem, is it really a big deal? It actually is a big deal, especially if you have financial goals and plans in mind. Many of those 4 million people won’t be able to reach their financial goals or live out their dreams, simply because of their thin credit file. The good news however, is that this can be turned around. There are a few things that you can do to fatten up your credit file and adjust your financial future as a result.
Before we continue taking a look at just how detrimental thin credit profiles can be, let’s discuss what it means to have a thin credit file in the first place. If you have a thin credit file, it means that there is insufficient financial history available to calculate a reliable credit score for your name. When entities do a credit check on your name, your personal credit reports and actual credit score, will come up empty. Keep in mind that a credit score isn’t a definite number and each credit bureau works a little differently. The Telegraph released some information on what a good credit score in the UK is, which you can read here.
How Can a Thin Credit File Hold You Back?
You might be wondering how having a thin credit file can be detrimental to your financial goals, but it can be. And here’s how.
Inability to open accounts
When you head over to your favourite clothing store and want to open a store card account to buy on credit, the first thing that the store does is run a credit check against your name. If the store notices that you have a poor credit score, it will note you as a high risk customer and will reject your application on the grounds that you don’t meet with the store’s credit criteria.
High interest rates offered on loans and credit cards
If you do take out a loan, your poor credit score (or lack thereof) will result in a higher than normal interest rate. This is because you are seen as a high risk. Many people who have a poor credit score from poor money management will use a high-interest loan to pay off their debts and rebuild their credit score. If you choose to consolidate your bad credit here in this way, you will find that slowly but surely (depending on how you manage your finances and loan account) your credit score will start improving.
Loan application denial/rejection when applying with the High Street Bank.
High Street Banks are all about rules and regulations. If your credit score is poor, you won’t get a loan from the high street bank. Even if you want a loan to start up a business and have a great business plan and projections to match. You would find more luck seeking out a loan from an unsecured lender.
Need for a co-signatory on a loan
Some lenders may provide you with a loan or credit card if you have a poor credit score, but they will require someone with a good credit score to co-sign the loan/credit agreement with you. Essentially, a co-signatory is saying that he/she will cover the cost of the outstanding loan if you prove unable to pay it off in full. It’s not always easy finding someone keen to co-sign a loan.
What Can You Do?
As already mentioned, there are things that you can do to fatten your credit file. A few brief options are mentioned below:
- You can take out an unsecured short term loan to use as a credit builder. These are small loans designed to be paid back quickly.
- Ask someone to add you to their credit card account as an authorized user. This sometimes bumps up an individual’s credit score.
- Get a secured credit card. This is a credit card that you load a cash deposit. Thereafter, you use it like a regular credit card. Your credit limit will be the amount of cash you have loaded onto the card. How you manage that money will reflect on your credit record.
Fattening up your credit file is not something that you can do overnight. It takes time and a bit of effort, but if you aren’t in a hurry and you do it properly, soon your credit score will be something to be proud of.