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Do you have a thin credit file – and what can you do about it?

Do you have a thin credit file – and what can you do about it?

14 November 2022 Concept Car

The current beauty ideal is being thin. But when it comes to personal finance, the exact reverse is true. A thin credit file is a serious issue for millions of Brits. It can deprive you of much-needed credit and make it virtually impossible to get accepted for a loan.

So what is a thin credit file? As it turns out, it’s not actually a sign of bad finances or mismanagement. In fact, in some cases you can even have a seriously thin file despite having always paid your bills in full.

It all sounds a bit mysterious and obscure. But really, it’s quite easy to explain.

If you, too, have been rejected for a loan, read on. Maybe a thin credit file is to blame. And there are decidedly things you can do about that.

What is a thin credit file?

Having a thin credit file means that there is not enough financial information available about you for lenders to assess your credit risk. Quite literally, your file is so thin that you’re an unknown quantity.

This is why Experian, the UK’s biggest credit rating agency, also refers to having a thin credit file as being “financially invisible”. In a sense, you don’t really exist for credit institutions and dealers. https://www.experian.co.uk/consumer/help-discover/discover/guides/the-invisibles.html

This can spell all sorts of trouble.

Is a thin credit file the same as a bad credit score?

Curiously, the two are almost entirely unrelated.

Having a thin credit file isn’t bad on paper, actually. You can have plenty of cash, and not a single missed payment – but still end up being invisible.

Here’s the logic behind this seemingly paradoxical statement: When a lender (which can also simply be your local dealership) considers your loan application, they need to know the probability of you paying back their money in full (plus interest).

If you have a low, but still acceptable credit rating, most lenders will still be happy to accept your submission. The loan will simply become more expensive.

But if they don’t know who you are, in financial terms, they can no longer assess the risk of a default. It becomes impossible for them to calculate the cost of lending. Even if they wanted to – they may find them unable to offer you any kind of deal.

There are two types of thin credit files.

Both good and bad things, so the saying goes, come in threes. So it should seem apt that thin credit files come in only two varieties. Let’s look at them in turn.

The first type of a thin credit file is the result of not having enough credit accounts. Maybe you did build up a bit of a score over the years. But you only used a very small amount of accounts.

Why is this an issue? Well, it needn’t be. For some lenders, a couple of accounts is fine to gauge your financial potential. Others, however, may find that to be insufficient. They may consider that anything less than that doesn’t feel like a meaningful sample. Which is why some experts estimate that somewhere between 4-5 accounts are usually required for a lender to consider your credit file meaningful.

The second type of a thin credit file occurs when there is not enough information on you in absolute terms, i.e. the lender simply doesn’t have a lot to go on. This is by far the most common form.

Who is most likely to be affected by a thin credit file?

Some have claimed that low- to average income households are frequently affected by a thin credit file. This does not seem very plausible to us.

It is true: Low income households will tend to have problems getting credit. But the most frequent reason is simply that their credit score is low. Missed payments, late payments, a high credit utilisation ratio and plenty of outstanding debt are the usual culprits.

Payday loans, on the other hand, are also quite popular with this group. These are associated with a high rate of defaults and financial difficulties. It is thus rather the case that the file of lower income households contains plenty of information – just not the kind you’d prefer.

New entrants

Instead, the largest group with a thin credit file are those just entering the credit market.

Which is only logical if you think about it. Imagine an 18 year old who just finished school and now wants to buy her first car. Since you can’t, actually, take out a loan before you’re an adult, there may in fact be absolutely nothing in your file whatsoever.

Experian claims that “almost a third (32 per cent) of those with sparse financial track records are under 30.”

Returning home

By the same token, anyone who has only recently moved to the UK will find themselves in the same conúndrum.

Let’s say you’ve returned home from a stint in mainland Europe or the States. Regardless of how well you’ve managed your finances there, all of that will almost instantly become worthless once you apply for a loan here.

This can be an equally complicated matter, as, for quite a few jobs, having your own car can be a requirement.

Why having no debt can actually be an issue.

We tend to think of debt as a problem. And it is true, generally speaking: Debt reduces your financial flexibility, and can even lead to insolvency in a worst case scenario.

At the same time, debt makes it possible for you to buy high quality items which perform better and last longer. It also makes it possible to invest and improve your financial situation in the long run. A loan also leaves more disposable cash for you. Which can be important in case of an emergency.

Some people disagree and prefer to buy everything in cash. It feels safer to them, it may also feel more natural and give them a sense of empowerment.

However, it deprives them of the chance to build a credit score. Their files will be extremely thin or even non-existent. Which is not a problem as long as you keep buying everything out of your own liquidity. But it also means that should you ever need to take up a loan, you are completely invisible to lenders.

It is at that moment that you may come to regret your thin credit file.

What are the problems of a thin credit file?

As we mentioned before, lenders may find it impossible to extend credit to you if they have insufficient information about your finances.

As much as we consider the credit rating (wait for it) over-rated, we do believe it is a useful tool. For us at Concept Car Credit, for example, we use the score as one element in the mix. It reveals to us, albeit imperfectly, something about your financial past. We can still work something out if your credit file is thin – we’ll get into that in a bit – but it does make things a bit more tricky.

For younger applicants, such as, for example, students, the situation is even more difficult. Building a credit score takes years. And if you’re just entering the finance market, you may not even have used a debit- or credit card at all.

This is why student debt is actually a category of its own and why banks have even invented financial products aimed specifically at this market.

Can you still get car finance with a thin credit file?

Yes you can, we’re glad to say. Even some standard banks and credit institutions will occasionally consent to this.

The thing is that having a thin credit file still comes with drawbacks:

  • You may not be able to get a loan for a more expensive automobile.
  • Your interest rate will be higher, as the risk of a default will be higher as well.
  • You will most likely have to pay a larger down payment. Down payments are one of the most effective ways of reducing risk.
  • The terms and conditions may be less favourable.

Sometimes, it will still be okay to take out one of these loans. In some cases, however, the increased cost and especially the demand for a high down payment may place them outside of your financial capacity.

So what alternatives are there?

Really, the most effective long-term strategy is to build a substantial credit file over time.

As mentioned, banks have started to treat students with more respect to build up more positive relations with potentially lucrative later customers. This is a significant improvement. Up until recently, the only real option for students was to ask for a co-signer. This would almost always be one or both of the parents or another family member.

As part of their more amenable strategy, financial institutions are now often issuing dedicated student credit cards. These have a (much) lower credit limit, but come with less severe conditions for getting accepted.

They can be a fantastic introduction into finance and an excellent way of building a rating.

I’m not a student!

We hear you. But there is no reason to worry.

Similar cards also exist for non-students with a thin or non-existent credit file. They are either called “secured credit cards” or “prepaid credit cards”. These are not, strictly speaking, the real thing, although they basically come with the same functionality. The trick is that they are secured by your savings account and there is thus no real risk involved.

You simply start using these cards to buy products and thereby gradually become increasingly visible to lenders.

What else can you do if you have a thin credit file?

Here are even more steps you can take – and should take – if your are facing a thin credit file:

  • Check if you’re on the electoral role. Getting on there won’t change anything about your financial history. But it will make it easier for lenders to find you.
  • Pay as many of your spendings – including your monthly phone bills, and utilities – using a current account or credit card.
  • You can ask your tenants to make sure your payments appear on your credit report.
  • Try everything in your power to get a loan despite your limitations. Paying it off will then contribute towards building a history which you can use for future loan applications.

But what can I do to get car finance NOW?

At Concept Car Credit, we believe that a thin credit file should not be a reason for a blanket rejection. Just like a low credit score alone is not a particularly good argument for rejecting you, either.

Ultimately, there is always sufficient information available that we can use to arrive at a better judgement:

  • Your current income
  • Your current spendings
  • The ration of these two and how much you can afford for a car on a monthly basis
  • The security of your current employment
  • Your savings
  • Whether or not you have a trade-in

All of this will help us arrive at a clear picture of your financial situation. Most of the time, it will be sufficient for us to make you an offer.


Then let’s talk.

You can reach us by phone at 0800 093 3385
Or use our contact form to get a free first quote.

We’re looking forward to hearing from you!

14 November 2022 Concept Car