While being called thin or slender in terms of your physique is often considered a good thing, having a “thin” credit file isn’t. A thin credit file is a special insider term used by the credit reporting agencies. Equifax and TransUnion consider your credit file thin if they lack sufficient information to calculate a credit score for you.
Not having a credit score can cause a lot of headaches. Without a credit score, you’ll have a tough time borrowing money for a mortgage or car. Even credit card companies generally don’t extend credit to those with thin credit files. Let’s look at a three common reasons why your credit file might be considered thin and how to fatten it up.
You’ve never borrowed any money
If you’ve never been extended credit (you’ve never had a mortgage, car loan, credit card or any other type of credit), credit reporting agencies won’t be able to come up with a credit score for you. The easiest way to start building credit is to take out a credit card and use it responsibly. That means paying off your balance in full each month.
Sometimes, getting a credit card can feel like a catch-22. Without credit score you might have a tough time qualifying for a traditional credit card, so consider signing up for a secured credit card. With a secured credit card you’ll pay a deposit ahead of time to cover your credit limit. That way lenders will be more willing to extend you credit so you can establish yourself a credit score and eventually qualify for other types of credit.
You’re new to Canada
As a new Canadian, you’re in a similar boat to those who have never borrowed money. Although you may have borrowed money in your home country, in the eyes of Canadian lenders you don’t have any credit score because you haven’t borrowed any money in Canada. If you’re planning to take out a mortgage to buy a house, establishing a credit score is paramount.
A credit card is a great way to start. Before applying for a credit card, it’s best to be gainfully employed. This will at least prove to the credit card issuer that you have the capacity to repay any money borrowed. Again, you might be turned down for regular credit cards, so consider taking out a secured one and slowly building your credit score.
Credit cards are valuable financial tools when used responsibly. If you plan on using a credit card to build credit, make sure you only buy things you can afford. It’s also wise to understand the payment terms and conditions of any card you sign up for.
Credit reporting agencies believe you’ve passed away
No, we’re not kidding. Sometimes credit reporting agencies mistakenly believe you’ve passed away for whatever reason. Someone with a similar name may have recently passed away, which is causing the confusion. Since dead people aren’t supposed to have credit scores, it can cause your file to be considered “thin.” If you find out you’ve mistakenly been classified as deceased, contact Equifax and TransUnion right away. If you’re not getting anywhere, file a dispute to prove that you’re still alive and well.
The Bottom Line
Your credit file might be considered “thin” if you don’t have any history of borrowing money in Canada, or there are errors on your credit reports. For many people, getting a secured credit card can be a good way of establishing credit. By using credit responsibly, you can establish a healthy credit score and improve your chances of obtaining the best interest rate next time you go to borrow money. Even if your file isn’t considered thin, it’s still good to get in the regular habit of building your credit score.