If you are young with little credit history, or haven't had any new credit accounts for some years or even if you prefer to save and pay cash, you may find it difficult to obtain loans, a mortgage or any other form of credit in the future.

One of the reasons for this could be a lack of previous debt which, admittedly, sounds bizarre.

However, this can raise red flags for some lenders who like to see their customers having a history of taking out and repaying loans and credit cards.

A full credit file, also known as a credit report, shows a lender the customer has a history of being able to meet their commitments and repay their debt.

What is a thin credit file

When someone has little or no history of applying for finance they are considered to have a 'thin credit file.'

When confronted by a thin credit file a lender is likely to think twice before approving any application for finance or credit.

But, a credit report doesn't just contain information about past financial transactions. Other data goes into your report and it can be the absence of this data which could prove to be as equally damaging as a lack of credit activity.

So what could be missing?

Basic information such as current address and date of birth should be in your credit file. If it isn't more of those red flags will be raised. A lack of a verifiable home address will see any credit application quickly rejected.

How to fix a thin credit file

Although the implications of a thin credit file can be far-reaching and even put a stop to any ambitions of being a home owner, it is fairly easy to fix.

The first step is to actually discover what is in your credit report, or rather what is missing from it. To do this you need to request a copy of your report from the credit reference agencies.

If your current address is incorrect or isn't listed this is easily resolved simply by registering to vote. This will ensure your name and address appears on the electoral role and subsequently in your credit file.

Check for errors in your credit file

Whilst checking for missing information in your credit report you should also check for any mistakes.

Although errors are rare, mistakes do happen and if payments have been missed or settled accounts marked as delinquent, your credit worthiness will be affected. Take this opportunity to fix any errors you find.

Put some beef into your thin credit file

The easiest way to add some bulk is to generate some credit activity. Fortunately, this doesn't mean taking on mountains of debt. There are easier ways.

Transferring regular payments to a credit facility will help without incurring debt. Moving from a pay as you go mobile phone to a fixed contract is one example of this.

Taking out a low limit credit card and paying off the balance every month will quickly establish a positive credit history and go a long way to bulking up a thin credit file.

CreditLadder can help you improve your credit score

If you want to improve your credit position by reporting your rent payments, CreditLadder is the only way to improve your credit score and position across all four of the main Credit Reference Agencies in the UK, namely Experian, Equifax, TransUnion and Crediva. Building up a high credit score has a lot of benefits, including helping you access finance at better rates - this can also help save you money.

CreditLadder also runs a free mortgage application service in partnership with Tembo which will tell you how much you could borrow.

Remember the information provided in this article is for information purposes only and should not be considered as advice.