Why is Open Banking a Saviour for Low Credit Scores?


If you have a thin credit file, it’s likely that you will have a low credit score. Through no fault of your own, you might be one of 8.5 million people in the UK with a thin file, making it a little more challenging to access the credit that you need. That being said, having a thin credit file isn’t the end of the world, as there are certain things you can do to build up your credit score over time. Below, we explain how Open Banking has helped people with low credit scores and what it means for you when you go to borrow money.

What does it mean to have a thin credit file?

Having a thin credit file essentially means you’ve never borrowed money before in the UK. Your file is inexorably linked to your credit score. When you borrow money, and throughout the course of the repayment period, you will be allocated a credit score that is predominantly based on how good you are at paying the money back. It provides lenders with an insight into how likely you are to repay credit again in the future, should you apply for it. However, in order to build up a good credit score, you need to borrow money. That might seem strange to some people, particularly those of you who are so good at managing your money that you’ve never had to borrow in your life.

This is undoubtedly one of the limitations of credit scores, as they don’t help people who don’t have a track record of borrowing. To potential lenders, your thin credit file makes you an unknown entity, which will probably cause them to err on the side of caution when deciding whether or not to issue you with credit. In addition to credit score, lenders also look at some basic information, including your address history and whether you’re on the electoral roll. Although seemingly small, these details are actually an important part of your credit file, so you need to update them.

Why do people have thin credit files?

There are numerous reasons why someone might have a thin credit file, including:

  • You might be young and have never accessed credit before.
  • You might be a new resident in the UK and have yet to access the banking system.
  • You might have spent a number of years without accessing credit.
  • You might be a recent divorcee (if your finances were tied to your ex-partner, you might not have much of a credit file).
  • You might never have opted for a credit card or loan out of choice.

Whatever the reason, your thin file is a sign to lenders that you’re an unknown entity in the world of borrowing money.

What is the impact of a thin credit file?

Unfortunately, if you have a thin credit file, you will probably struggle to borrow money. This is true even if you’ve never been in debt. This comes from the fact that lenders like to know who they’re dealing with and what your track record is before agreeing to a loan. To improve your chances of being approved with a thin credit file, you could:

  • Make sure you’re on the electoral roll
  • Open a current account and use it in the right way
  • Sign up for a monthly phone contract and pay the bill on time
  • Ensure the household bills are in your name

Also, if your bank offers one to you, consider taking out a credit card, even if you don’t plan on using it often. Just make sure you make the monthly repayments on time, and it will help you build your credit score.

Open Banking and thin credit files

Open Banking is like a knight in shining armour for people with thin credit files. Open Banking enables lenders to securely access real-time financial data from borrowers, getting a clear picture of their financial situation without relying on credit scores. In other words, if you apply to an Open Banking lender like Koyo Loans for a personal loan, it may not matter that you have a thin credit file.

Final thoughts

When you’re applying for credit, having a thin file is far from ideal. But as mentioned, switching your attention to Open Banking lenders can enable you to access credit more easily and is a smart move if you’re either new to the UK or are looking to borrow money for the first time.


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