Beyond Thin Credit Files

Marvin M. Smith and Christopher Henderson

Social Science Quarterly, 2018, vol. 99, issue 1, 24-42

Abstract: Objective In the world of credit, the moving force for a consumer is the credit score. A high credit score will help secure good credit with favorable terms and even a somewhat lower credit score might assist in getting credit, albeit at more costly terms. However, no credit score is likely to be a deterrent to gaining credit. A credit score might also be required to gain services other than financial credit, such as access to a rental property or obtaining certain types of jobs. This is especially problematic for individuals who have insufficient credit information to derive credit scores and who are classified as thin‐file individuals. Some maintain that there might be individuals with thin files who are creditworthy despite not having a credit score. This report explores this assertion quantitatively and investigates if there are any identifiable patterns in former thin‐file individuals qualifying for credit scores. The study also discusses the use of alternative data to assist in scoring thin‐file individuals. Methods We use the Equifax database to follow two samples of thin‐file individuals with no credit scores for at least four years in order to develop a timeline indicating when they obtained sufficient credit to qualify for a credit score. Results Our findings document that many individuals with thin files in fact proved to be creditworthy. Some of them even became homeowners. Their eventual credit scores ranged from below 520 to 740 and above. Moreover, most of them qualified for a credit score within three to four years. Furthermore, during this four‐year timeframe, the majority received credit scores in the first and second years. Conclusions Even though many individuals with thin files qualify for credit scores within a relatively short period of time, the wait time might be made even shorter if alternative credit data are used to help score them.

Date: 2018
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