A thin credit file means you don’t have enough information in your U.S. credit report, making it difficult for you to build a credit score. Many people from newcomers to the U.S. to students, have “thin files.” You can also have a thin file if you rely primarily on cash or debit cards to settle your bills or if you had credit in the past but stopped using it.
The major U.S. credit bureaus, Equifax, Experian and TransUnion, all rely on information from banks and other lenders to calculate your credit score. When you have a thin credit file, lenders won’t have enough information on your personal finance history to make an informed decision on your application. However, there are strategies you can use to thicken your credit file quickly so you can access affordable interest rates, products and services here in the U.S.
1. Open a secured credit card account
A secured credit card requires you to make a security deposit, which is typically equivalent to your spending limit. For example, if you make a security deposit of $600, then your monthly spending limit will also be $600. Lenders subtract your outstanding balance from your deposit if you fail to make a payment.
Secured cards come with a higher Annual Percentage Rate (APR) than unsecured cards. You might encounter interest rates as high as 24% on your outstanding balance. If you maintain a good record, however, many secured card issuers may offer you an unsecured card with lower interest rates.
Make sure you keep your credit utilization under 30% of your credit limit on your account. Going over the 30% threshold could damage your credit score. That means that for your 600-dollar credit limit, you should make sure not to spend over 180 dollars.
Additionally, ensure that your secured cards report your usage to the major bureaus to help you build your credit. If the card issuer doesn’t report to all three major credit bureaus, then your credit score doesn’t improve, even if you make all your payments on time.
2. Use a credit-builder loan facility
Credit-builder loans are unlike typical loans for one main reason: they don’t release your loan to you until it’s fully paid. Only after making all of the monthly payments on the loan will you get access to those funds, which lessens the risk incurred by the lender. Again, always ensure that the lender reports the lending activity to all three credit bureaus.
3. Find a co-signer
One other way to make it easier to get a new credit product is to apply with a co-signer who already has an established credit in the US. When you list someone with an established U.S. credit footprint as part of your credit application, you can benefit from their good credit history. Before applying, however, make sure your co-signer knows what he or she is getting into -- a co-signer agrees to be responsible for your debt if you don’t pay your bills. Research co-signer options when you apply for different credit cards or loans.
If you fail to make a payment, the co-signer has to pay the amount, plus a penalty fee. If you default on your account, then it affects your credit score, as these lenders report to the credit bureaus. Eventually, you’ll be able to establish your own credit line.
4. If you’re new to the U.S., use your international credit history
It used to be that a newcomer to the United States couldn’t “bring” their credit report or international credit score with them. Even someone with extensive credit in their prior home country would have to take on the onerous task of building her U.S. credit history back to its previous levels from scratch, which can take as long as five years.
Here’s the good news: Nova Credit has built technology to translate credit data from countries like Australia, Canada, India, Mexico, the UK and more into a U.S.-equivalent score that newcomers can elect to share with U.S. companies when they apply for credit products here.
After you obtain your first U.S. credit line, your use of the card will typically start building a credit history at one or more of the three major U.S. bureaus: Experian, Equifax and TransUnion. All of Nova Credit's lending partners will report your credit performance to at least one of these credit bureaus. Over time you can build your U.S. credit score and apply for a wider variety of products to keep building your score.
Always check your credit history
Sometimes, a low credit score or a thin credit file can be a result of an error. Checking your credit history and keeping track of your credit score can give you peace of mind that your credit report is accurate.
There are various ways to check your credit score online. The Consumer Financial Protection Bureau (CFPB) entitles all consumers to one free credit check per year from the three major bureaus. Some credit card statements will also allow you to check your monthly VantageScore or FICO score while companies like Credit Karma offer you the opportunity to check your credit score for free.
For more resources on how to navigate your new life in the U.S., visit Nova Credit’s resource library where you can learn about everything from renting an apartment to finding the best credit cards for noncitizens.
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