"You would want to know something about that person before you gave them 50 bucks. One of the things you would want to know is, have they borrowed 50 bucks from other people at a bus stop and paid them back reliably? It might make you feel a little better about parting with your hard-earned cash," he says.
Consumers in a thin-file predicament find themselves in a Catch-22 situation not unlike college grads who apply for jobs requiring experience. To build up a history, prospective borrowers need to get credit. But how can they get credit if they need credit to get it?
You can go about this in a few ways.
Go for retail or gas company cardsMost shoppers have had the experience of transacting a purchase in a department store during which the clerk launches into a sales pitch for the store card. Most retail store cards, as well as gas company cards, offer some perks for signing up, plus they're somewhat easier to obtain than general-use credit cards.
"Typically those card issuers are more tolerant of thin-file people because their risk of exposure is so much smaller than the Visa or Mastercards of the world," Watts says.
One downside is these cards often sport higher interest rates, so it behooves borrowers to pay the bill in full each month. Another big drawback is that not all of these card issuers will report your on-time payments to the credit bureaus.
"You do want to make sure that they are reporting your payments to the credit bureaus," says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling in Silver Spring, Md.
"For instance, don't go down to the corner drugstore which may have in-house charge accounts. They may set up an account but not report it," she says.
Consider secured cardsAnother option for getting started with plastic is with a secured credit card. A secured credit card acts like regular general purpose card but is secured with a deposit, usually for an amount equaling your credit limit.
"You put up X amount of dollars, $300 or $500, and you're issued a credit card that looks like everybody else's credit card -- it's not stamped 'secured card' or anything so you're not embarrassed,'' says Cunningham.
"But the issuer has no risk as you charge and repay that debt each month as you build a positive credit history," she says.
Get a bank loanConsumers with a thin credit file and a good relationship with a bank or credit union may be able to get a loan using their savings account as collateral.
"As you pay back the loan, the bank will report your good borrowing behavior to the credit bureaus, whereas they would never report your checking or savings account," Watts says.
Alternatively, borrowers who can't quite get a loan on their own could consider finding a co-signer. For responsible borrowers, co-signing a loan can be a great way to build credit. The key word is responsible.