I’ve spent the 24 years of my life avoiding debt. Well, probably more like the last seven years because I didn’t really have a way to accrue debt before venturing off to college. But since 2007, I’ve been warding off debt with garlic, crucifixes and lots of fiscally responsible behavior.
So, color me embarrassed when I went to use CreditKarma for the first time and discovered I had a “thin file.”
What does a thin file mean you ask?
Well…“When you have a ‘thin file’, you have a limited credit history with few credit accounts, so it is not possible to provide you with a credit score. Consumers with a thin file have difficulty getting approved for most financial products because lenders are unwilling to risk lending to someone with limited credit history.”
Thus far, I haven’t had to haggle with lenders because I’ve never needed to be spotted money for college or a mortgage or a car or to start a small business or the dozens of other valid reasons to take on debt.
My father, in his infinite financial wisdom, advised me to open a credit card when I first went away to college in order to establish credit history. After all, your credit score is the one grade that matters after college. I followed his advice and have carried that piece of plastic with me for seven years. I dutifully charged a few items per month and paid them off in full, so as to be establishing this elusive credit history.
Three weeks after college graduation I moved to New York City and that credit history appeared to be sufficient because it provided me with a high enough credit score to be approved by my landlord.
Now, I’ll admit a glaring error on my behalf. After seeing my score while signing my lease back in 2011, I’d never really given it a second thought until a few months ago. I heard some great things about CreditKarma and figured I should be responsible — just like getting your dental check ups. And we all know how I feel about clean teeth.
After CreditKarma came back with that thin file notification I started to do some digging and immediately ran a credit report from Experian (for free of course) and I discovered they weren’t recognizing the credit card I’d been so diligently using for seven years!
Thanks to my debt aversion, I don’t exist to to the credit reporting agencies.
This is a problem.
It’s not just a problem because I have a minimal credit history, although I’ve seen my FICO score recently and I’m sitting pretty in the high 700s, but because the entire credit report structure is based on debt or debt-causing tools.
It just about sends me into a blind rage that I may be declined for a loan or given a jacked up interest rate because I’ve been fiscally responsible and been given the opportunities to avoid debt.
Recently, I was listening to one of my favorite podcasts, Stacking Benjamins, and Average Joe was interviewing Steve Stewart from Moneyplan SOS. During the interview, Steve mentioned alternative credit scoring and a service called eCredable.
I was intrigued.
Alternative (or non-traditional) credit are payments that you don’t find in your credit reports from the big three credit bureaus. This could include payments to home payments (or rent), utility companies, cellphone providers, insurance companies and similar service providers.
Thanks to the slight complex I’d received from CreditKarma, I was relieved to read the following on eCredable’s FAQ page: “Regardless of whether you have no credit file, a thin credit file, or a credit file with negative credit information, your alternative credit information can help you in any of these situations.”
Apparently, Federal Law not only recognizes alternative credit, but under the Equal Credit Opportunity Act you can use it when someone is asking to run a credit check. So, if you’re like me and are slightly lacking in the credit history department, you can use eCredable to help give you a boost.
There is a lot of grey area when it comes to reporting alternative credit, so the power houses of Fannie Mae and Freddie Mac, that we all know and love, created a four-tiered system for the verification and use of alternative credit, which eCredable uses for the basis of their system.
The brief version of the system:
- Tier I includes payments for housing
- Tier II utilities
- Tier III insurance payments
- Tier IV various other payments including leases for furniture, layaway, childcare etc.
While I have yet to fork over the dough to verify my bills and run an AMP Credit Report, I do appreciate having an option to prove my trustworthiness to a future lender (should I need one). In another move, I decided to get the Discover it credit card almost purely because they give you your FICO score for free with each monthly statement (and the cash back and no annual fee). Plus, it’s a credit card which means it should help create credit history.
I feel like I’ve fallen for that one before…
Have you had issues with a credit card not being on your report or lack of debt causing issues?