One in Ten American Consumers Is Credit Invisible

According to recent research by the Consumer Financial Protection Bureau, about 26 million American adults currently have no credit history. In other words, roughly one in ten American consumers have no records with national credit reporting agencies such as Equifax, Experian and TransUnion. Additionally, another 19 million Americans have limited or out of date credit reports, which renders them unscorable. In all, about 45 million Americans are presently credit-invisible, i.e., living without credit scores.

But why is a credit score so important? Well, that’s because not only do credit card issuers and mortgage lenders access credit scores to ascertain how financially responsible a person is, but the strength of the score can even determine how much he or she will pay for security deposits or as interest. Hence, the absence of a credit score can greatly impact a consumer’s life. Research reports showed that Blacks and Hispanics had a credit invisibility rate of 15 percent, while among the whites the rate was 9 percent. Having a low income could also predict the absence of a credit score. Data indicated that almost 30 percent of consumers in low-income neighborhoods were credit invisible while another 15 percent had unscorable credit records.

Age was also a factor determining the existence of credit scores for Americans. More than 80 percent of 18- and 19-year-olds had no credit history, primarily because they had no time to establish one. Moreover, the CARD Act of 2009 restricted consumers under the age of 21 from getting a credit card unless they could prove they had a job or a co-signer. This in turn restricted them from building any credit. Additionally, the widespread use of prepaid debit cards also hampered the establishment of credit history.

One of the ways in which a consumer can build or rebuild his/her credit history is to obtain a secured credit card, which can be used to draw on money deposited with a bank. However, while taking this route, it is necessary to ensure that the card chosen by the consumer will report the payment history to all three credit agencies. Another way is to become an authorized user on someone else’s card. College students also establish some credit history when they have a student loan, even though their payments might be deferred while in school. A third, less known, option is to take out a credit builder loan from a credit union. Through this method, a consumer makes payments into an interest bearing account for the life of the loan and at the end of the time period receives the money, along with any accrued interest.

In order to establish a good credit score, it is important to ensure that credit card payments are made on time and no over-borrowing is done. Although time and effort is required for building credit history, it is a relatively small price to pay for having a history with credit reporting agencies.

At Fund&Grow, we help our clients enhance their personal credit and help them to build strong business credit as well, from $50,000 to $250,000. We even have a solution that requires no upfront payment.

If you are interested in enhancing your business or personal credit in any way, please call us for a free consultation to see how we can boost your business and personal scores. We also have strategies and consulting to help you gain access to funding for your small business. If you think you might be interested, please give us a call at (800) 996-0270.