What to Do when You Have an Insufficient Credit History

Are you having some incredible idea that you’d like to finance with credit, but you have an inadequate credit history?

If you’re applying for a loan, you might get confronted with one of the most significant challenges: credit history.

No doubt – finances stress out a lot of people, and almost everyone aims to achieve financial freedom.

The more you comprehend how your finances work and take control of your funds, the more you take control of building a comprehensive credit history.

Insufficient credit history could seemingly be a stumbling block if you’re applying for a mortgage or want to buy a new car.

However, in reality, insufficient credit history wouldn’t limit your ability to negotiate for favorable interest rates and excellent quality loans.

The exciting bit is that you still can be an attractive client to loan issuers as well as credit card companies. Here’s what you need to know.

What it means to have an insufficient credit history

While some financial experts could claim that insufficient credit history means being put out in the cold, this label shouldn’t be a cause for gloom.

It doesn’t necessarily mean you have negative items or inquiries: it’s more likely you lack enough data in your report to generate a credit score.

Your credit score is stored in the three major reporting centers – Equifax, Experian, and TransUnion – and each bureau creates a score based on the information they have about your report.

So What to Do when You Have an Insufficient Credit History?

Primarily, your credit history includes payments like credit card payments, loan clearances, delinquencies, or any other account (like old student loans or library fees).

Several factors contribute to your credit score, but the one having immense weight is the age of your credit history and the amount of debt you have against your available credit.

In 2015, the Federal Consumer Financial Protection Bureau (CFPB) documented that at least 10% of Americans are “credit invisible,” which means they have an insufficient credit history in at least one of the three major credit information centers.

While some lenders could question your creditworthiness due to insufficient credit history, it shouldn’t bother you since it’s much better than other detrimental issues like negative items.

No credit history and zero debt

You can build a good credit history with zero debt and work towards having a comprehensive profile.

Your first consideration should be utilities that require payments at the end of the month – like gas, oil, satellite – and convince your potential creditors that your subscriptions work similarly like credit since using those services is much like promising to pay up at the end of the month.

Typically, such payments have a relationship with credit, and you should attach documents showing a positive payment history to prove that you’re good at clearing your balances.

However, this requires that you check with every provider and confirming whether or not they’re willing to provide your report. Some will, while others would not, but it takes such small attempts to establish a good credit history.

Poor credit history vs. zero credit history

Companies use our credit history to determine whether or not you’re good at fulfilling your financial obligations.

When you apply for a secured loan or mortgage, the company wouldn’t have a way of determining your creditworthiness, which makes insufficient credit history sometimes worse than having bad credit.

If you had a bad credit history, for instance, the company would have given you an expensive interest rate or present the option of paying a deposit before getting the loan.

However, insufficient credit history means the company is likely to reject your application for credit, phone subscriptions, or rental space. It could be incredibly daunting to find a loan issuer that is willing to work with you – leave alone striking a good deal.

Benefits of a complete credit profile

A typical lender would scrutinize your credit report before accepting your loan application.

A three-digit score – preferably between 300 and 850 – means you’re highly eligible for a credit card loan.

Essentially, the higher your credit score, the higher the chances of getting good quality loans with favorable interest rates.

Besides loan issuers, insurance companies also use your credit score to determine the premiums you’ll get.

There are different models used by different companies to calculate your credit score, but the ones that cut across the various models are your outstanding balances and credit history.

If your history contains information that can’t be conclusively verified – like your birthdate or SSN – the system might consider you as having an insufficient history and fail to generate a score.

In a nutshell, your history tells lenders what type of person you are –which makes it incredibly imperative to have an excellent financial history.

Apply for a secured credit card

With a minimal deposit amount like, say $600, you can obtain a “secured” credit card since the bank can debit your account if you default.

The amount you deposited would be your credit limit. Though the card won’t come in handy when you’re making massive purchases, you’ll typically begin proving your creditworthiness if you make all payments on time.

Most banks have a limit of below $500, which can arise as you establish a good payment history.

Remember that the idea here is to assure the credit company that you’re good at making timely payments: you shouldn’t worry about the low amounts of credit.

Once you complete the payment, you can close the secured account and apply for an unsecured loan since you’ll be having a positive history.

Pay your bills on time

If you have electricity bills to take care of, rent, and monthly insurance premiums, chances are the service providers would report missed or late payments to the credit information centers.

You have to maintain a positive and timely payment and avoid delinquencies that may put you in trouble with reporting agencies.

Alternatively, you can ask your landlord to report a positive history, use a rent reporting service or programs that report alternative payments.

Remember that paying bills on time isn’t a one-time thing – you should do it continuously to have a positive payment history.

Take a personal loan

Some lenders could overlook the absence of sufficient credit history and process a personal loan for you.

Unlike mortgages or car loans that need collateral for security, personal loans aren’t secured by anything.

However, in the absence of a good credit score, you might be required to pay expensive interest rates – which makes it necessary to scour the market for favorable interest rates.

In this case, it would be wise to stash the amount you get from the personal loan, instead of using it, then make the payments each month until you clear the debt.

Keep in mind that the idea here is to get a positive credit history without necessarily getting funds for some projects. Clearing the debt early and making responsible monthly payments would be an excellent indication to future lenders that you’re fiscally accountable.

Look for a cosigner

If you know someone with excellent credit history and perfect credit score, you can ask them to cosign the loan, and you repay the money to help build your credit score.

Cosigning requires the responsibility of both parties – cosigner and consignee – which means that the other party would be liable in case you default.

Finding someone to cosign a loan isn’t easy since the risks of defaulting include damaging the credit score of the cosigner, so you need to make wise selections and keep everything transparent.

Don’t over-utilize your credit

One of the most significant determiners of good credit history is the credit amount available for use.

Keep your utilization preferably below 30% – which means that if you have a $1500 credit card, your usage should never surpass $450.

Report non-debt obligations

Credit card companies and loan issuers are starting to habitually consider options like rent or utility payments that have no associated debts as substitutes to standard credit checks.

While not all lenders use such alternatives, you’ll be in a better position if you file reports of such obligations and are less tedious and cost-effective.

Experian, for instance, came up with Experian Boost – a way to enhance our credit score by reporting non-debt utilities and rent payments. You also get a credit report for free and obtain a FICO score when you use this product – which is one of the most incredible tools you can use.

Other services like Credit Karma will add such non-debt payments would add to your history. You should ask your water, gas, cable, and mobile utilities to add to report to your bureaus.

Check your report frequently

There has been a widespread prevalence of cybercrime where cybercriminals use personal information such as SSN, birth dates, and make changes using your identity.

Cybercrime can seriously affect your credit report and tank your credit score significantly, which makes it imperative to be careful and always check for identity theft.

You can prevent such occurrences by retrieving your report from the three information centers, and compare information in the three of them to ensure that you’re the one who did all the transactions.


Credit card history matters.

Some lenders could overlook insufficient credit history if the applicant is really strong. This process, however, requires manual underwriting – something rare since most operations are automated – that could take a significant amount of time.

Regardless of the methods you use to grow your credit, note that it doesn’t happen overnight. You’ll have to be patient and explore every opportunity to grow your history and score.

I hope this article answered your question “What to do when you have an insufficient credit history“. Please share it if you find it useful. Thank you very much.

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Robert Ferry

We are an unbiased knowledge center for finance and our goal is to help you make your own, educated decisions about getting your credit life turned around.