What Does Insufficient Credit History Mean?

What does it mean to have an ‘insufficient credit history’?

If you have recently applied for a loan, credit card, or any other form of credit and the response you got was that you have a ‘thin credit file,’ this may be asking what it means and what you need to do next. To sum it up, a lack of credit history implies that the borrower does not have enough history in terms of borrowing, hence a new borrower is deemed to be a high risk without an adequate track record to give a potential lender or creditor enough basis to assess him/her.

Why You May Be Classified As Having An Inadequate Credit History?

There are several common reasons why you may end up with this kind of notice when applying for credit.

You are twenty and just beginning your career. If you are between the ages of 18 and 25 and have never taken a credit, loan, or any other form of credit, or if you have never taken a credit check in the past then you will have insufficient data on your borrowing and repayment history for the credit check to prove useful. If you have not paid bills and debts for the last several years, most regular creditors will consider you as unpredictable even if you have no negative credit history in any way.

You are a foreigner with no means of borrowing credit in the United States. In particular, if you are a novitiate in the United States, you do not have any kind of credit history in America at all, which can cause great difficulties in obtaining loans or credit cards from large banks and financial institutions. Credit histories from your home country are not pulled over or in any way considered when determining your credit in the United States, even if you maintained a stellar credit status back home.

You have not used credit and have no debt. Some people choose strategies of avoiding consumer debts and borrowing money to the extent possible. However, over a longer period, it leads to extremely scant credit references and insufficient usage for scoring algorithms and credit providers to analyze. When the credit reporting company only has limited information on how one has managed debts in the past, even if one always pays the bills on time and has a low balance on the few credit accounts one may have, they can be classified as having insufficient credit history determinations.

You recently started from a brand new beginning, a fresh start if you will. Maybe over the last several years, major financial difficulties or personal troubles forced you to develop a new credit profile from scratch. Even if you have been very careful in the usage of new credits since then, you might not have enough recent account activity to satisfy many mainstream lenders.

Repercussions of no or minimal record of credit history

However, being categorized as having low credit means that your financing options in these important areas are restricted until you manage to accumulate more credit history in the future. Some potential impacts include:

• Being rejected for credit cards or given low credit limits and higher interest rates on any cards you are granted
• Being denied credit for the purchase of a car and having to postpone the decision of buying or selecting another type of transport such as public transport, cheap cars which can be bought with cash or credit from predatory lenders who offer credit to high-risk buyers but at exorbitant rates
• Failing to secure a mortgage loan requires the documentation of credit profiles, stringent checks on credit scores, income-to-debt tests, and hefty down payments from so-called risky borrowers.
• Hiring is restricted to cockroach-infested apartments with non-resident landlords, or sharing a rented home with strangers rather than better, more recently-built apartment buildings because the majority of property managers and associations of apartment and condominium owners use credit reports and credit scores in the process of selecting tenants.
• Loss of some of the employment opportunities if the employer insists on conducting a credit check and you don’t meet the historical standards expected of you.
• Paying higher rates for insurance products since some carriers use credit-based insurance scores and insufficient history leads to low scores.

As you can see, a lack of a well-developed credit history in terms of debts and repayments can harm your financial situation and the quality of your life in numerous ways until you do something that will improve the situation.

How to Create an Adequate Credit History?

If the insufficient credit history is getting in your way, focus on steadily adding positive information to your credit reports over the next several years through responsible behaviors like.

• Applying for and opening a secured credit card: These are easier to obtain by individuals who do not have long credit histories and will assist you in beginning to build a payment history each month.
• Applying for an increase in credit limit on any of the longest-established credit card accounts of a spouse or other family member, to take advantage of the good history that the accounts will show on the applicant’s reference reports
• Applying for small installment loans – such as credit union or peer-to-peer lending – and paying all the debts in full and on time to illustrate responsible borrowing
• Not exceeding the credit limits set while using any form of revolving credit
• Monitoring your three major credit reports for any discrepancies or missing information and promptly disputing any erroneous entries
• Using freemium services for credit score tracking and updating them as frequently as needed to account for factors influencing the scores each month.

By maintaining good progress in these areas for two to three years, you should have enough history to get better approval chances and interest rates from mainstream creditors the next time you apply for major loans or credit cards. Just wait and let your good money management behavior keep going and push positive information into your credit report while insufficient history will cease to be a problem in the future.

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