Credit education
Credit Invisibles and Thin Files Explained
A guide to understanding issues that may be holding back your financial planning
Why don’t I have a credit score? Am I credit invisible?
If you are having problems getting credit and cannot check your credit score, you may be what’s considered either ‘credit-invisible’ or a ‘thin-file’.
In this article, we’ll explain the difference between having a thin file and being credit invisible and how either of these things might impact you. We will also detail the steps you can take to create a credit report, build your credit score and improve your financial confidence.
What information do financial organisations need and why is it important?
When you make an application to use a financial product or borrow money, such as a credit card, mortgage or loan, banks and other lenders turn to credit reference agencies to provide them with information on how you’ve managed credit before. This helps them understand and assess whether you have the means and intent to repay any money they provide.
It might seem odd for lenders not to accept you when you have no history; in many ways, having no previous or recent need for credit could be a good thing, suggesting savings, investments or a well-paid job. However, if lenders have no record of your previous credit performance, you’re an unknown risk. If they have no idea how you’ve previously managed your borrowing, they cannot assess whether you’ll repay money borrowed in the future.
This may sound unfair, but lenders have a duty to lend money responsibly, and part of this is to ensure they take into consideration historic lending and other financial commitments, so you don’t become too stretched and unable to pay your debts. If you have no history upon which to easily base their assessment of whether you’re likely to make repayments, they may choose to reject your application or suggest alternative options to borrow money.
Conversely, if you’ve successfully managed and repaid previous debt, your higher credit score demonstrates you’re more likely to continue to do so, thus building confidence with lenders. For that reason, it’s easier for people who have information with a CRA to access appropriate borrowing.
What does being credit invisible mean and how could this impact me?
Credit invisibility means you do not have any credit history with one of the UK’s three Credit Reference Agencies (CRAs): Equifax, Experian and TransUnion.
In the age of social media, cookies, data collection and personalised advertising and targeting, being invisible from an identification and credit perspective might seem like an attractive position. However, having your information registered with an agency, such as TransUnion, can have a significant and positive impact on your ability to meet your financial and or lifestyle goals.
How could being credit invisible impact me?
If you are invisible to the financial system, it means there’s not enough information about you or your financial track record, so credit reference agencies cannot accurately create you a credit report. Unfortunately, if you are classed as ‘credit invisible’ or ‘thin file,’ you may find it difficult to access financial products, such as a mortgage, loan, credit card and even mobile phone contracts. And if you are accepted, you may find you have a lower credit limit or higher fees compared to others.
Examples of who might be thin file or credit invisible
Below are a few reasons that could influence why someone could be classed as either credit invisible or thin file.
You’re under 21 years of age
- Your credit report isn’t usually created until you’re at least 18 years old. If you’re under this age, start to educate yourself on the role of credit data within financial services. You can find useful information and facts here. It’s important to note most lenders will not lend to under 18s.
- If you’re between 18 and 21, CRAs like TransUnion won’t necessarily hold any data on you until lenders and organisations with whom you hold a financial relationship start to share your data. Remember, your credit history, and therefore your credit report, is built based on your previous performance (i.e., data relating to previous credit agreements you have had). If you have never held any such accounts, CRAs may not have information on you.
- The good news is you can start building your information with CRAs by having a bank account with a small, well-managed overdraft. UK utility and telecom accounts are also frequently shared with the CRA’s, and having a monthly mobile phone agreement,water, or gas bill in your name can help build your history and track your performance managing money.
You are new to the UK
Unfortunately, even if you had an excellent credit history in a different country, you’ll need to start building your new report from scratch within the UK as credit reports aren’t currently transferable between countries. This is because there are different CRAs in the UK — each with their data gathering systems. If you have recently moved to the UK and have no credit history here, you are likely to be classed as credit invisible.
If you are a British, Commonwealth or EU citizen or have been granted permission to enter or stay in the UK, speak to your local council about registering on the electoral register. Then, make sure your utility bills are in your name and at the same address with which you registered on the electoral register. Both these actions can help CRAs create a credit profile for you.
You have never used, or no longer have a need for credit
- Your credit history can only begin when a lender — for example, your bank or finance provider — reports an account to TransUnion or one of the other CRAs within the UK. If you never open an account with any borrowing, there will be no record of your performance and determining your creditworthiness (ability to repay) will not be possible nor will generating your credit report.
- If you tend to use cash or debit and don't rely on any credit, you could have nothing in your credit history and lack a credit report as a result.
- CRAs can only keep closed account information for six years from the date it was closed. If you have previously had credit accounts which were closed over six years ago, and haven’t opened any new accounts, you may struggle to access new lines of credit.
- If you no longer or never had a need for credit, there’s a strong likelihood you’ll either be credit invisible or thin file in the eyes of financial services. Whilst for some individuals this could be seen as a demonstration of financial stability and success, it can not only make it difficult to obtain future credit, but it can also make it hard to prove your identity.
CRAs are used for more than just checking your credit score; many organisations use CRAs to confirm that you are who you are claiming to be through an identity check.
As with younger audiences, the good news is you don’t necessarily need to open a loan or mortgage for CRAs to securely hold your information. Simply having a utility or mobile phone contract in your name can help to create your report.
Benefits of having a credit report
Additional benefits of having a credit report
It's not just banks and lenders that use information contained in your credit report many landlords perform checks on potential tenants, as do some employers so even if you have no immediate need for finance its still important to have your information registered with a CRA.
As the use of online services increases, so does the opportunity for fraudsters to impersonate people to borrow money and take out other products and services. One way organisations are protecting themselves is by using the trusted data CRAs hold to check the person is who they claim to be — and not a fraudster. Being credit invisible or thin file can make it difficult for organisations to easily perform these checks on you.
Steps you can take to create a credit report
There are a number of ways to create a credit report and begin improving your financial standing. Doing this work can help your financial knowledge and future well-being. Some of the actions you can take include:
- Register on the electoral register. Registering to vote is a simple, free way to create or improve the information held by CRAs — and can even improve your credit score should you already have one. Many lenders undertake identity checks as part of their quotation or application process, and being registered on the electoral register can help you prove who you are and where you live. You can check whether you’re eligible to vote, and if so, register in a few simple steps online at gov.uk.
- Open a current account with a major UK lender. This helps ensure your data is shared with CRAs and will contribute to your credit history, allowing you to begin proving your ability to manage your accounts responsibly.
- Get a monthly mobile phone contract in your name (not prepay or pay as you go). This is often the first step of people who are new to credit in the UK. Mobile phone providers share your account performance with CRAs, allowing you to build your credit profile and demonstrate your ability to successfully manage your credit agreements.
- Put utility bills in your name. Good news for residents is within the UK, CRAs also receive feeds from a number of utility providers, so having your household energy or water accounts in your name can help build your credit profile and history.
If you pay via a monthly credit account (prepay meters are excluded), this is classed as a credit agreement. Therefore, not only can this data be used to create your credit report it shows you’re able to successfully manage your accounts and have a history of repaying on time, which can help towards building a good credit score over time.
Start getting to grips with your credit report today
A good, healthy credit report and score isn’t achieved overnight; it takes time to build a strong, detailed credit history. So, even if you aren’t currently looking to take a financial product, you may want to start the journey now to position yourself for the future — and these tips can help set you on the right path.