Most of us understand the concept of credit scoring and the impact that it can have on your ability to obtain the most competitive financial products and services. The higher your credit score, the lower ‘risk’ you are to a lender, thus making you a more desirable customer. Credit scoring is based upon previous financial transactions, anything from paying bills to unsecured loans, which all go to making up your credit history. Your credit score is calculated using your credit history. However what if you have no credit history? What if you have never applied for an unsecured loan before and always paid your bills on time, or have never even had bills in your own name! Will a credit reference agency even have enough information to generate a credit score for you? These people are considered to have a ‘thin’ file. Basically, if you don’t have any history of dealing with credit products and services then you are unlikely to register a high score. Therefore, does having a thin file really affect your ability to obtain credit?
It is true that lenders will be reluctant to borrow money to anyone with a low credit score, and those with a thin file will probably have this so it seems somewhat contrary. Surely if you have never experienced debt or had to borrow money you are almost the perfect customer? However, lenders are not looking for those that have always had enough money to live; they base their lending decisions on your ability to manage credit well. Those that have a long history or borrowing, and have repaid debt in the past are more attractive to lenders, as they are confident that you will continue paying in the future.
Having a thin file, although very frustrating is not the end of the road when it comes to obtaining credit. There are ways to build your credit, and it isn’t necessary to take on lots of debt.
Opening a credit card is an excellent start. You may only be offered a small maximum amount at first, possibly up to £500, but if you can use it for small amounts every month, and make the minimum payment, then this will help in building your credit history. Set up a direct debit as soon as you open the card, to help you manage your payments responsibly, and ensure that you don’t ever miss a payment. There are also now a significant number or lenders that are more flexible with their criteria, and would consider those with a thin file.
Credit reference agencies are now also requesting information from utilities providers. So if you have a direct debit set up for gas, electricity and water, or even pay for a mobile phone, this is now taken into consideration. You must of course ensure that these are regularly paid on time, which all goes to proving that you are a good reliable customer, capable of managing financial commitments.