What to do about your insufficient credit history

If an insufficient credit history is holding your financial situation back, there are a few things you can do to build it up, and move in the direction you want! 

1. Make sure your lenders have your correct information – If your lender entered your name, address, or birthday incorrectly, it could mean that your accounts aren’t showing up under your file, making it appear that you have insufficient credit history.

2. Get your utility payment history added to your credit report – Ask your utility companies to report your on-time payments to the credit bureaus for a boost. Or use apps like RentReporters and Experian Boost. They also work to improve your credit by adding your on-time payments to your credit reports.

3. Become an authorized user on someone else’s credit card – This option has some positive and negative aspects, but if it’s done right, it can give your credit history an easy boost.

4. Get a secured credit card – This is basically a credit card that you pay a security deposit on. Because it’s low risk for the card issuer, it’s easier to get approved for and can help you fix your insufficient credit history.

5. Get a credit builder loan – Credit builder loans are small loans you can get from local banks of financial institutions. The bank holds the money in an account while you make payments and build credit. Once the loan is paid off, the money is made available to you.

6. Open a store card – Store cards are generally easier to get than regular cards, so if your credit history is insufficient, this may be an option.

7. Get a co-signer – It’s possible that a lender who would normally deny your application, could approve you if you can get a co-signer to take responsibility for the debt.

We’re going to learn how to fix insufficient credit history with each of these methods, what it actually means and how it can affect you.

Let’s jump right in!

Related post: How to increase your credit score by 200 points!

How to fix Insufficient Credit History

1. Check to Make Sure Your Lenders Have Your Correct Information

When you finance, certain information is required by the lender. But it’s possible that someone entered it incorrectly when they setup your account (i.e. your name, address, or social security number.) If that’s the case, your account may appear to be for someone else.

Another possibility is that you’re not consistent with the information you give. For example, if you give different versions of your name to different lenders, your accounts may appear to belong to different people.

2. Get Your Utility Payment History Added to Your Credit Report

It used to be that utility bills could only hurt your credit score. This is because utility providers don’t usually report your on-time payments to the credit bureaus, but they do report when you’re late!

But if you sign up for Experian Boost, your utility payments will be used to improve your financial history. In fact, Experian states that of their users who had thin files (a.k.a. insufficient credit history) 46% moved to a thick credit file after using Experian Boost. 

Another way for you to take care of your insufficient credit history is with RentReporters. When you sign up, they contact your apartment landlord to verify your rent payments and report those payments to TransUnion and Equifax.

Your credit rating can increase in as little as 5 days with RentReporters!

3. Become an Authorized User on Someone Else’s Credit Card

If you want to learn how to build credit when you are young, this is a good option. As an authorized user, you’ll be able to use someone else’s card in your own name.

To make this happen, the primary account holder simply needs to add your name to their card and give you authorization to use it.

Keep in mind that the credit card issuer may, or may not, report account activity on the authorized user’s credit report as well as the primary account holder’s. So, becoming an authorized user is likely to affect your credit report, but it’s not guaranteed.

If it is reported on your credit report, then it could affect you positively if the primary account holder is good about making payments.

On the other hand, if the primary holder doesn’t make payments on time, those poor credit habits will be reported as well.

4. Get a Secured Credit Card

If you want to learn how to get a credit card with no credit, check out secured credit cards.

A secured card requires that you pay a security deposit before you can start using the card.

The card issuer holds onto your deposit just in case you don’t pay your bill. You’ll get your deposit back once you upgrade to an unsecured card or close your account with no balance due.

Because secured credit cards are less risky for the card issuer, they’re easier to get and can be a fantastic way to improve your credit history.

5. Get a Co-Signer

If you’re unable to get approved for a loan, see if you can get a co-signer to take responsibility with you.

The point is to convince the lender that you’ll pay back your loan, but if you can’t do that on your own, it may be easier to find someone that is creditworthy to take responsibility with you

FYI: Secured vs. Unsecured Credit Cards

A secured credit card is a card that you have to pay a security deposit for before you can use it. As opposed to an unsecured credit card that has no collateral attached.

6. Get Credit Builder Loans for Insufficient Credit History

If you want to learn how to get a loan with a little credit history, a credit builder loan is a great way to do it.

The way it works is that the bank approves you for a loan but holds the money in an account while you make payments towards the loan.

The payments you make are reported to credit bureaus, which builds your credit. And once you make the final payment, the money is made available to you.

Credit builder loans aren’t widely advertised and are usually available at local credit unions, online lenders, and other financial institutions.

7. Open a Store Card

In general, it’s easier to get approved for a store card than a regular credit card. So, if you have insufficient credit history, try to apply for a card from your favorite retailers.

Keep in mind that store cards also have higher interest rates than regular cards as well. So you definitely don’t want to fall behind on any payments.

FYI: Open-loop vs. Closed-loop credit cards

A closed-loop credit card can only be used at a specific store or a group of stores (i.e. retail store cards)

While an open-loop credit card can be used anywhere the card brand is accepted. (i.e. Visa, Mastercard)

The Different Meanings of Insufficient

Insufficient Credit History

What does insufficient credit history mean?

An insufficient credit history (a.k.a. “thin credit file”, a.k.a. “credit invisible”) basically means that you don’t have enough open accounts reported to satisfy the lender.

Remember that the whole point of your credit scores and credit history is to show lenders that you’re able and willing to pay them back.

Keep in mind that it’s possible for you to have credit scores, get approved by certain lenders for finance, and still have other lenders tell you that you have an insufficient credit history.

Related post: How to buy a car with bad credit.

Insufficient Number of Accounts/ Insufficient Credit References

Some lenders want to know that you can responsibly handle multiple accounts before they approve you for credit. This could especially be true if you want to apply for bigger debt loans. If you don’t have the number of accounts they want to see, you may end up being rejected for having an insufficient number of accounts.

Insufficient Funds

Insufficient funds occur when your checking account doesn’t have enough money deposited to cover an attempted withdrawal.

Depending on your bank, the withdrawal may be denied, or the bank may pay the amount and may charge you an overdraft fee.

How do You End up With an Insufficient Credit History?

If you’re young or new to the U.S., there might not be enough information available for the credit bureaus to use to generate your credit scores.

Likewise, if you haven’t used credit in a while, you may find that you now have a thin credit file. This happens because items on your report are removed after a certain number of years. And if you don’t generate any new activity, your report could dwindle down to nothing.

What are the Effects of Insufficient Credit History

A lack of credit history usually means a lack of debt. And most people would consider that a good thing.

But there are two real-world consequences of having an insufficient credit history.

1. There’s no way to judge your creditworthiness – This may not seem like a problem if you don’t plan on using credit. But your creditworthiness is important to more than just lenders who finance purchases. Landlords, utility companies and even some employers check your credit history.

2. It’ll be extremely difficult to borrow money – You may not plan on using credit to make simple consumer purchases. But there’s always the chance that you’ll need access to money someday. Whether it’s to buy a house or start a business…and borrowing that money will be a lot more difficult if you have an insufficient credit history or no credit at all.

No Credit History vs Bad Credit

Building a good credit score from scratch is a lot easier than recovering from poor credit, because of how many years bad credit history remains with you.

How to Get Credit History Report

You’re entitled to get a free credit report every year from the credit bureaus, Experian, TransUnion and Equifax. Go to annualcreditreport.com to request your free credit reports. When you get your credit reports you can see exactly what appears in your history.

If you want to learn how to check personal credit scores anytime, sign up with CreditSesame or CreditKarma. With these free apps, you can get your credit scores right on your phone!

Time Needed to Build Credit

If you’re starting from scratch, it could take from three to six months to build a history with the credit bureaus. But during that time make sure you build an excellent history!

To build up a good credit history it’s pretty much required that you pay your bills on time and make sure you don’t max out your credit!

Related Post: How to use Your Credit Report to  Save Money.

Get a Credit Card With Credit Insufficient History?

It’s entirely possible for a credit card issuer to approve you even if you have an insufficient credit history. To make it happen, try to apply for one of the following:

Secured Credit Card – These are credit cards that you’ll have to pay a security deposit on first before you can use it. After a few months of responsibly using your card you’ll get your money back and can upgrade to a “regular” credit card.

Student Credit Card – Student cards are made specifically for people with low income and little credit experience.

Authorized User – It’s possible that someone with a credit card can add you to their account. If this happens you credit can be positively (or negatively) affected by what goes on with the account.

Store card – Getting a card that’s specific to a retailer is easier than getting a general purpose card. Keep in mind that the interest rates are also higher for store cards.

Credit Card Cosigner – Some credit cards allow you to have a cosigner if your credit history is insufficient for you to get it on your own.

Final Thoughts

Insufficient credit history can be a frustrating problem to have. On the one hand, you need credit to build credit history. But on the other hand, nobody wants to give you credit because you don’t have history.

With the strategies we’ve talked about here, and consistent, on time payments, you should be able to build up your credit history in a few months, and start your financial life out on the right foot.

Cheers!