Insufficient Credit History: What It Means & How to Fix It


Imagine this. You can’t wait to get a new credit card or auto loan. Then, you’re told that you have insufficient credit history. If this happens to you, rest assured you’re not alone. In fact, it’s quite common, especially for young people.

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It takes time and effort to establish a solid credit history that allows you to qualify for a variety of financing products. So, what does insufficient credit history mean? Let’s take a closer look at what insufficient credit history is and what you can do to resolve it.

How are Credit Scores Calculated?

Before we go over what insufficient credit history means, let’s discuss credit scores. Put simply, your credit score is a three-digit number that shows how responsible you are with money. When you apply for a credit card or loan, lenders will often look at your credit score to determine whether to approve you.

If you have a high credit score, you’re more likely to get approved for financing with low rates and favorable terms. While you can still lock in a credit card or loan with a low credit score, it will be more difficult. You may also have to settle for high rates and less-than-desirable terms.

There are different credit scoring models, but FICO is the most popular. Most lenders and credit card companies use it when they pull the credit scores of potential borrowers. Your FICO score is made up of five factors, including:

  • Payment history: While a history of on-time monthly payments will help your credit score, missed or late payments will have the opposite effect. That’s why it’s important to pay your bills on time, every time. Payment history is 35% of your FICO score.
  • Amounts owed: Amounts owed refers to your credit utilization, which explains how much of your credit limit you actually use and accounts for 30% of your score. The general rule of thumb is a credit utilization of no more than 30%.
  • Length of credit history: A longer credit history is beneficial for your credit score. If possible, try to keep your old accounts open. Length of credit history is 15% of your FICO score. A long credit history is better than a short credit history.
  • Credit mix: Credit mix is the types of accounts you have. Ideally, you’d have a good combination of installment loans, credit cards, and revolving credit accounts. Credit mix makes up 10% of your score.
  • New credit: Applying for too many new credit accounts in a short time frame can harm your credit. Only apply for credit when you absolutely have to. New credit is 10% of your FICO score.

In addition to FICO, some credit card issuers and lenders consider VantageScore. While the VantageScore formula is a lot like the FICO score formula, the categories are divided in different ways.

  • Payment history: Whether you make timely payments shows if you’re a risky or responsible borrower. Payment history is 40% of your VantageScore credit score.
  • Age and credit type: 21% of your VantageScore is the mix between the length of your credit history and the types of accounts you have open.
  • Credit utilization: Your credit utilization ratio accounts for 20% of your VantageScore. You should use less than 30% of the total credit that’s available to you.
  • Total balances: Total balances, which are 11% of your score are the amount of recently reported balances on your credit accounts. Low balances show that you’re more likely to make on-time payments.
  • Recent credit: Recent credit is 5% of your score and refers to newly opened accounts and the number of hard inquiries. Too many hard inquiries and open accounts may bring down your credit score. Only open a credit line if you know you’ll use it responsibly.
  • Available credit: Available credit is only 3% of your score. But it’s still important to only take out the credit you need.

Credit Score Ranges

FICO scores range from 300 to 850. The higher your score is, the less risky of a borrower you are in a lender’s eyes. A higher score can increase your chances of getting approved for credit with favorable interest rates and terms. In contrast, a lower score indicates you’re a riskier borrower and makes it difficult to get approved for financing. Here’s an overview of the various FICO score ranges and what they mean.

  • 300-579: Very Poor
  • 580-669: Fair
  • 670-739: Good
  • 740-799: Very Good
  • 800-850: Exceptional

What is Insufficient Credit History?

If your credit history is considered insufficient, you don’t have enough experience with loans and credit cards to have a credit score. There’s a good chance you fall into one of these three categories:

  • Credit invisible: Credit invisible is when you don’t have a credit history with one of the major credit bureaus, like Equifax, Experian, and TransUnion. This may be because you’re young or recently moved to the U.S.
  • Unscorable: If you’re unscorable, you have a credit report but it doesn’t have enough information to generate a credit score. None of your accounts are at least six months or old or you haven’t made any updates to your accounts in the past six months.
  • Thin credit file: A thin credit file means that while you do have a credit report with some information, the lender or creditor reviewing it believes the number and types of credit accounts you have are insufficient for the product you’re applying for.

Reasons You Have Insufficient Credit

There are numerous reasons you may have insufficient credit, including:

  • You’ve never used traditional credit: You build a credit history when a credit card issuer or lender reports that you recently opened a credit account. If there’s no record of this, you don’t have enough credit history and there’s no way for a credit score to be populated. This situation may apply to you if you use cash or debit cards and don’t have anything listed in your credit history as a result.
  • You haven’t used credit in more than 24 months: After you open an account, you should use it so that credit scoring models can determine how you handle your debt. If you don’t use your credit for more than 24 months, you may not have the data for a credit score. For this reason, it’s smart to use your credit every once in a while, if possible.
  • You’re young: If you’re a teenager or in your early 20s, there’s a good chance you don’t have a credit history. You may have relied on your parents financially and never had to apply for or use your own credit.
  • You’re a recent immigrant: As an immigrant who recently moved to the U.S., you may lack any experience with credit. Unfortunately, the credit you might have established in your home country won’t apply in the U.S.

Insufficient in Personal Finance

You may notice the word insufficient gets used often in the world of personal finance. Here are three common terms that include it and their meanings.

  • Insufficient credit history: As we stated, insufficient credit history is when you don’t have enough accounts with a long enough history for your credit card or loan application to get approved.
  • Insufficient funds: Insufficient funds or non-sufficient funds (NSF) is when you attempt to make a debit card purchase or withdrawal, but your account doesn’t have enough money to cover it. Most banks and credit unions charge insufficient funds fees when this happens.
  • Insufficient number of accounts: If you’re applying for a larger loan, a lender will want to make sure you can handle taking on the debt. In the event you only have one credit card or one loan on your credit report, they might reject your application. They may worry that you won’t be able to make your payments.

Insufficient Credit vs. Poor Credit

It’s important to understand that insufficient credit isn’t the same as poor credit or a bad credit score. When you have bad credit or a bad credit history, you have a history of late payments, delinquencies, bankruptcies, and other negative remarks on your credit report.

Insufficient credit, on the other hand, means there’s not enough information to inform lenders and creditors how you manage money. Fortunately, most won’t assume you’re irresponsible with finances just because you have insufficient credit. Keep in mind, however, that insufficient credit can still make it difficult to land the financing you desire, just like a poor credit history.

Consequences of Insufficient Credit History

The reality is that insufficient credit can take a toll on several aspects of your life. Here’s what may happen.

  • Rejections: If you apply for credit cards or loans with insufficient credit, lenders and credit card issuers won’t know if you’re worth lending to. It may be too risky to extend you an offer so don’t be surprised if they reject your application.
  • Higher interest rates: Interest refers to the cost of borrowing money. The lowest interest rates are reserved for borrowers with solid credit histories. Insufficient credit may lead to higher interest rates that cost you hundreds or even thousands of extra dollars. To pay interest without breaking your bank account, an established credit history is key.
  • Difficulty getting an apartment, utilities, or insurance: Whether you want to rent an apartment, get a great deal on utilities, or lock in insurance, insufficient credit can get in the way. Most landlords, utility contractors, and insurance companies don’t want to lend to those with insufficient credit.
  • Employment issues: Believe it or not, it’s not uncommon for employers to pull your credit when deciding whether to make you a job offer. Insufficient credit might make you a less attractive candidate and cause an employer to find someone else for the position you applied and interviewed for.
  • Challenges with a mortgage: Homeownership is the American dream. But unless you have a lot of cash at your disposal, you’ll need a mortgage to buy a house. With limited credit history, this can be a tricky endeavor.
  • Not qualifying for credit cards: Many credit cards come with impressive perks like sign-on bonuses, cash back, and travel points. If your credit history is deemed insufficient, these cards may be out of reach.

How to Improve Your Credit History

If you have insufficient credit history, you’re not doomed forever. As long as you’re willing to put in some effort, you can improve your situation, build a positive credit history, and open the doors to great opportunities in the future. Some of the best strategies to improve your credit include:

Choose the Right Credit Card

While you may not be able to get a traditional credit with high limits and generous rewards, there are several options available to you. If you’re a college student, a student credit card is worth considering. Just be prepared to show proof that you’re enrolled in an educational program. Student credit cards are fairly easy to get and great tools for building credit.

A secured credit card may also make sense, as long as you don’t mind making a security deposit. You can use it to make purchases, like you would with any other credit card. Once you upgrade or close your secured card, you’ll get your deposit back.  You can eventually move on to an unsecured credit card.

Retail or store credit cards are easy to get and a suitable option if you shop at a certain store often. If you go this route, however, you’ll only be able to use the card to make purchases at select stores.

See also: Secured vs. Unsecured Credit Cards: What’s the Difference?

Become an Authorized User

If you have a family member or close friend with good credit, ask to be an authorized user on their credit card account. You’ll have access to their account and be able to make purchases. But the primary cardholder or card owners will be responsible for making the payments.

This strategy can allow you to piggyback on someone else’s credit history and establish credit faster than you’d be able to on your own.

Opt for Credit Builder Loans

Credit builder loans are similar to secured credit cards. You choose a monthly payment and term that works well with your budget. Then, you make a security deposit or cash deposit, which the credit card company will return to you at the end of the loan.

As long as you make timely payments and your lender reports them to the major credit reporting agencies, you’ll slowly but surely build your credit history. A credit builder loan can be a great alternative to a traditional personal loan.

Look for Personal Loans

Contrary to popular belief, you may still be able to get approved for personal loans with insufficient credit. Some lenders have lenient requirements and are willing to lend to all types of borrowers, including those with no credit, limited credit, and bad credit.

Note that you may have to settle for a higher interest rate, so this option only makes sense if you shop around and score a great deal.

Pay Your Bills on Time

There’s a good chance you have monthly bills, like your rent, mortgage, utilities, car loan, cell phone bills, and insurance premiums. Make it a priority to always pay your bills on time. Even a few late or missed payments can ding your credit score.

If you’re struggling to make your bill payments, reach out to your financial institution to discuss your options. They might let you make a partial payment or defer your payment. If you tend to miss your payments often, you may want to enroll in automatic payments.

Make a Small Purchase

If you have a small purchase to make, use one of your credit cards to do so. As long as you pay it off right away from your checking account or savings account, you can give the credit scoring models the recent activity needed to give you a credit score.

Be mindful of how much you spend. If you go over your credit limit, overspend, and are unable to repay your purchase, you may damage your credit instead. The goal is to pay off your purchase, not get into credit card debt.

Be Patient

Establishing credit and a good credit score takes some time, especially if you’re brand new to it and don’t have any type of credit record. Be patient and don’t expect results overnight. Just remember that with time and diligence, you can establish solid credit.

How Long It Takes to Build Insufficient Credit History

Fortunately, it shouldn’t take too long to establish a strong credit history. You may see results right away or anywhere from one to six months. It all depends on these factors:

  • Lender requirements: Your lender or credit card issuer may have particular requirements regarding the number or types of credit accounts you have or the amount of time you’ve had them. This means you might have to wait longer than six months.
  • The strategies you take: Some strategies lead to faster results than others. If you become an authorized user on someone else’s credit card, for example, you’ll enjoy instant results.

How to Monitor Your Credit

It’s your responsibility to keep tabs on your credit to determine if your efforts are paying off. To do so, you can take advantage of these resources:

  • Visit once a year to pull copies of your credit reports from the three major credit bureaus. If you notice any errors or inaccuracies, dispute them with the appropriate credit bureau. Mistakes can easily interfere with your efforts to establish credit so it’s well worth your time to check each free credit report.
  • Your credit card company: These days, many credit card issuers, like Bank of America, American Express, and Citi offer a free credit score and credit monitoring services to their customers.
  • Experian Boost: With Experian Boost, you can report your utility and phone payments for free plus enjoy access to your Experian credit report and Experian FICO score.
  • Credit building products: Credit builder loans and secured credit cards might also send you credit score updates for free.

How to Get Financing with Insufficient Credit History

Sometimes, you can’t wait long for a credit card or loan. If you have insufficient credit history, follow these steps.

  • Shop around: Not all credit card issuers and bank or credit union lenders are willing to lend to borrowers with insufficient credit. That’s why you’ll need to do your research. Once you find several options that might extend credit to you, compare interest rates, repayment terms, fees, and perks.
  • Choose a loan: After you compare lenders, choose a loan that meets your budget and needs. Remember that you might have to settle for a higher interest rate or shorter terms than you’d like.
  • Fill out the application: Next, visit the lender’s website or stop into a local branch to complete the application. Be prepared to share documents like your government-issued ID, pay stubs, and bank statements.
  • Get your funds: Upon approval, you’ll need to review and sign your loan or credit card documents. Many lenders offer quick funding the same day you get approved, within 24 hours, or in a few business days.

Move Forward with Insufficient Credit

If you have insufficient credit history, realize that it’s not set in stone. In fact, there are several strategies that can help you turn it around and build a good credit history.

As long as you put some time and effort, you can establish a strong credit and open the doors to more financing opportunities down the road. Best of luck!

Anna Baluch
Meet the author

Anna Baluch is a freelance personal finance writer from Cleveland, OH. She enjoys helping people make smart financial decisions.