When you have a thin credit file, it means there's not much information in your credit reports. However, when there isn't much for a lender to go on, it can make things like getting a car loan more difficult. Fortunately, getting approved with a thin credit file may still be possible when considering other important factors.
What does it mean to have a thin credit file? Having a thin credit file literally means that there's not a lot of information to go on when you apply for new credit such as a credit card or a car loan. This can happen when you're new to credit or when you don't use credit often.
When you're new to credit your score typically starts in the lower to middle range and gets better or worse depending on how it's handled. To build credit, and keep your score climbing it's a good idea to have a mix of revolving credit, like credit cards, and installment credit, like auto loans and mortgages, and to make all your payments on time and in full.
In fact, if you have a thin file, getting an auto loan can be a wonderful way to start your credit journey.
What's in your credit report? Your credit file is made up of five categories: payment history, amounts owed, length of credit history, new credit, and credit mix. Each one is weighed and together they combine to make up your credit score. The more information you have in your file, the more there is to build your credit score. A car loan is a long-term installment loan that allows you years to make on-time payments and it impacts all aspects of your credit reports.
Where to go for a car loan with thin credit. To get a car loan with a thin credit file, it's typically best to look at a special finance dealership with subprime lenders or work with a buy here pay here (BHPH) dealership. at. These dealers have experience working with borrowers that have thin credit files.
Subprime Lenders look at more than what's in your credit reports to determine auto loan eligibility. They also take into account your income, employment, residence stability, and require you to meet certain stipulations such as a down payment. If you qualify for a subprime auto loan you may face higher interest charges, but your loan is reported to the credit bureaus and can help you start building credit with responsible management.
A loan from a BHPH dealer may help you get into a vehicle, but they're not guaranteed to help you build credit. BHPH dealers are both lender and dealer and are also known as in-house lenders. This means, they often overlook the credit check as long as you can prove you have the income to take on the car loan, and can put down a substantial down payment. But, since they don't need to check your credit not all BHPH dealers report on-time payments to the credit bureaus either. It's a good idea to check if your loan will be reported at the start.