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- Someone who is credit invisible has no credit history, so they can't qualify for a loan or credit card.
- Credit invisibility disproportionately affects Black and Hispanic Americans, immigrants, and younger people.
- You can become credit visible by taking out a credit-builder loan or secured credit card.
Credit scores operate on a scale of 300 to 850. The better your credit score, the easier (and cheaper) it is to borrow money. While a bad credit score can hamper your borrowing efforts, having no credit can shut you out entirely.
Credit scores set the terms for some of the most important financial decisions in your life, such as buying a car or a house. Even an apartment rental application can hinge on your credit score. Yet a TransUnion survey found that 45 million American consumers are considered credit underserved or unserved.
Here's everything you need to know about credit invisibility, who it affects, and how to become credit visible.
Introduction to credit invisibility
Being credit invisible is exactly what it sounds like; you're invisible to the credit system. Richard Barrington, a Credit Sesame financial analyst, says being credit invisible "means that you don't have any credit record — good or bad — because you've had little or no opportunity to use credit."
You go to a bank, mortgage lender, or credit card company to apply for a loan and find out that there is little information about you. There's no payment history, current or prior auto loans, credit cards, student loans, or other forms of debt listed from any of the three credit reporting bureaus — Experian, TransUnion, or Equifax. As a result, your application is denied because your ability to repay loans cannot be determined.
As homebuying is a key component of wealth building, credit invisibility can severely affect your ability to achieve your financial goals and build generational wealth. However, the effects of credit invisibility extend beyond the credit space. For example, your credit score, or lack thereof, can affect how much your insurance costs. It can also affect the result of an apartment rental application.
Who does credit invisibility affect?
According to research conducted by consulting firm Oliver Wyman, 19% of Americans are credit invisible. A disproportionate number of credit-invisible consumers are Black or Hispanic; they're 1.8 times more likely to not have a credit score. Oliver Wyman's research shows that 26% of Hispanic consumers and 28% of Black consumers are credit invisible or unscorable, compared to 16% of White and Asian consumers.
Even Black and Hispanic consumers with credit scores are still 1.9 times more likely to have a subprime credit score. 40% of Black consumers and 29% of Hispanic consumers have subprime credit, compared to 20% of white consumers and 11% of Asian consumers.
Credit invisibility is also prevalent among immigrants as they generally arrive in the U.S. with an empty credit file, regardless of their credit status in their country of origin. Younger consumers also face similar issues, turning 18 without a credit profile. According to a FICO survey, 29% of Gen Z consumers don't have a credit score or don't know if they have one.
Additionally, while credit score calculations aren't necessarily tied to your income, the two are correlated. Oliver Wyman found that 30% of consumers in low-income neighborhoods are credit invisible, and 16% of them are unscorable. In comparison, 4% of consumers in high-income neighborhoods are credit invisible, and 5% of those consumers are unscorable.
Elena Botella, author of "Delinquent: Inside America's Debt Machine," notes that credit invisibility also affects senior citizens who haven't used credit for long enough and their credit file has deteriorated. Additionally, some simply have no interest in obtaining debt of any kind. As a result, they remain unseen in the eyes of the credit bureaus.
Causes of credit invisibility
Lack of credit history
There isn't one reason why a person has a credit profile that renders them credit invisible.
In the simplest cases, someone might not have had any reason to borrow money, so they never had a reason to use credit. Similarly, a younger consumer may simply not have had the opportunity to build credit within the period of time they've been eligible to apply for a loan.
Demographic factors
Lily Liu, founder of rent reporting company Piñata, says that the causes of credit invisibility aren't the fault of individual consumers. Instead, "credit invisibility is rooted in systematic issues baked into the legal and credit structure," she says. As a result, "certain sectors of the population are systematically more likely to be 'credit invisible' than others."
Implications of credit invisibility
Black and Hispanic families hold less wealth than white families. According to the Federal Reserve Bank of St. Louis, the average Black family holds 25 cents for every dollar of white family wealth. Hispanic families hold 23 cents for every dollar of white family wealth. While consumer's income isn't directly used to calculate their credit score, it's far easier for someone with a higher income to make on-time monthly payments on a loan or keep up with credit card interest rates.
Similar to income-related credit invisibility, Wanda Bowman, Financial Director of Fortune 29 and author of "The Financial Glow Up," adds that those with little to no job history can also fall under the credit-invisible population because it's difficult for them to establish credit due to lenders viewing them as a credit risk.
America's history of redlining also contributes to credit invisibility, barring people of color from homeownership and a crucial part of wealth building. Though outright redlining was outlawed in 1968, housing discrimination persists. In 2022, the CFPB ordered Trident Mortgage Company to pay $22 million for discriminating against Black and Latino families in the Philadelphia area.
Redlining and continued discrimination also damage the trust people of color place in financial institutions, further contributing to credit invisibility. Negative prior experiences with lending can lead people to shun credit and credit-related products, a sentiment that can spread throughout a community.
In her interviews with people across America, Botella found that the "prevailing narrative" on credit invisibility assumes that credit-invisible people want credit. Still, certain barriers prevent them from acquiring credit. While this is certainly true in certain instances, the narrative glances over another group of credit-invisible people whose negative experience with debt caused them to stop seeking credit.
How to determine if you are credit invisible
Understand credit scoring models
Credit scores are determined by the information in your credit reports, so if you do not have credit, you will not generate a credit score, making it difficult to obtain credit. Even if you open a small line of credit or a secured card, it's better than not using credit at all.
Check your credit reports
You can check your credit reports to see if there is any credit history. Once you obtain credit, check your credit reports regularly to ensure that all payments are being reported accurately and on time and that your positive payment history is growing.
Steps to overcome credit invisibility
To get credit, one must already have a credit history, but to gain that credit history, one must already have credit. To break this catch-22 and become credit-visible, you need to find a way to get your foot in the door.
Become an authorized user on another's account
Start small and slow. Barrington suggests signing on as an authorized user on someone else's credit to start, which is often the easiest way to build credit. Becoming an authorized user will grant you a credit card. The original cardholder will be responsible for any charges you make on this card. However, this requires you to know someone who will be willing to add you to their card, which isn't accessible to everyone.
Barrington says that people seeking higher education can also build credit along the way. "For young adults attending college or vocational school, a federal student loan can be an excellent way of establishing credit," says Barrington.
Get a secured credit card
There is also an abundance of credit-building products that you can qualify for without prior credit. Certain banks offer secured credit cards with low spending limits but often come with high interest rates. You can read our picks for the best secured credit cards.
Use credit-builder loans
The best credit-builder loans work almost the reverse of typical borrowing: When you sign up to "borrow," money, the company sets aside that cash for you, and you don't get it until you've made a certain number of payments. In the meantime, the company reports your payments to the credit bureaus, therefore building a positive credit history. Credit-builder loans usually don't require a credit score, though if you miss a payment, that can undermine your credit-building efforts.
Regularly monitor your credit
Many banks will give you regular updates on your credit score, or you can sign up for a free service like Credit Karma or Credit Sesame. There is no need to ever pay to access your credit score. Also, you don't need to check every day — your score only changes when your credit activity is reported to the credit bureaus, so set a calendar reminder to check monthly.
Rent and utility reporting
There is also an abundance of alternative information you can now add to your credit reports. You can now report your utility bills and certain subscription fees through Experian Boost. You can also add your rent payments to your credit reports. You'll need to go through a third-party rent reporting service, as most landlords only report to the credit bureaus if you fail to pay your rent. The best rent reporting companies can report past rent payments as far back as 24 months.
Seek out financial resources and information
Many local banks and credit unions offer free workshops on various financial topics, including ones on building credit. Building a relationship with your financial institution requires asking questions, and understanding and following the rules.
Frequently asked questions about credit invisibility
There are varying statistics on credit invisibility. According to a 2018 CFPB study, 26 million people in the U.S. are underserved. However, a 2022 TransUnion survey found that 8.1 million people are credit unserved, meaning they've never opened a credit account before, and 37 million people are credit underserved, meaning their credit profile is limited to one or two accounts.
No, you probably cannot get a loan if you are credit-invisible. Credit invisibility has a number of disadvantages. It can prevent you from taking out a loan or a credit card, prevent you from renting an apartment, or even stop you from getting a job in rare circumstances.
It takes at least six months of consistent credit activity to build a credit history.
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