Invisible Credit

A person is “credit invisible” if they have no credit history or report at the three national credit bureaus (Experian, TransUnion, and Equifax). The Consumer Financial Protection Bureau estimates that one in 10 Americans have no credit history and that 26 million American adults are “credit invisible”?

Why Does Being Credit Invisible Matter?

The absence of credit reports causes credit invisibility. You may lack credit reports if you have no record of borrowing or repaying money in the form of loans, credit card accounts, or other types of consumer credit.

Being credit invisible can affect your day-to-day life in several ways, such as:

✓ Inability to get a credit score. Credit scores are based on the information compiled in your credit reports, so you cannot get a credit score if you have no credit report. FICO® Scores☉, used by 90% of top lenders, require 180 days (six months) of recorded credit activity (or “credit visibility”) before they can be calculated.

✓ Challenges with credit applications. Many lenders use credit scores and reports to automate lending decisions. If you’re credit invisible, lenders evaluate your credit applications using a more time-consuming process called manual underwriting. A loan officer inspects your financial documents to gauge the likelihood that you will repay your loans. Credit reports and scores encapsulate much of the information required for underwriting, so automated loan decisions typically come much more quickly.

✓ Difficulty with emergency loans. Because speedy or instant credit approvals rely on credit reports and credit scores, being credit invisible may limit your options when you need to borrow money quickly. Credit invisible individuals rely disproportionally on payday loans, auto title loans, and other expensive (sometimes predatory) lending options when they need emergency cash or credit.

✓ Higher security deposits. It’s common for landlords to run a credit check when you apply for an apartment and cable companies and internet providers do the same when you sign up for service. Each case helps the landlord or service provider decide whether to do business with you and, if so, how large a security deposit to charge you for an apartment or leased equipment such as a wireless modem or cable box. Credit invisibility is not the same as poor credit. It probably won’t prompt a refusal to work with you, but in many cases, a lack of credit history can be grounds for requiring a hefty security deposit.

How to Go From Credit Invisible to Credit Visible

It’s a classic problem: How can you establish a record of credit payments when a lack of credit history makes it difficult to borrow money? 

Several existing products are considered helpful in establishing or rebuilding credit histories and provide you with the opportunity to practice making on-time payments reported to the credit reporting companies. Below is a list of standard credit-building products to explore:

✓ Secured credit cards: You can apply for this card like a traditional credit card and, after approval, deposit an amount of money –which can range from $50 to $300 depending on the credit card company – into a separate account. The bank holds onto this deposit and extends you a credit line matching the deposit amount you made. Banks typically report card activity to credit reporting companies, so you build credit with its use, but be sure to ask your card issuer. Many secured cards also include a “graduation” component, so you can move seamlessly from a secured card to a traditional credit card after establishing a consistent payment pattern.

✓ Credit builder loans: Financial institutions, typically credit unions, deposit a small “loan” (often $300-$1000) into a locked savings account, and you pay the institution back with small-dollar payments over 6 to 24 months. These payments are reported to the credit reporting companies. Once you come to the end of the loan term, you receive the accumulated money. These loans often have the dual benefit of building credit and savings. The savings could be used for an emergency (instead of a more costly financial product) or a deposit for a secured credit card. This can help you establish a credit history for the first time.

✓ Retail store credit cards: Many gas stations, department stores, or retail chains offer credit cards. These cards are easier to obtain and typically offer lower credit lines. This combination makes them an option when you’re looking to build up a thin or nonexistent credit record.

✓ Become an authorized user on a family member’s credit card. You get your card as an authorized user on someone else’s account but share in the primary account holder’s borrowing limit and payment history. As long as the account is managed responsibly—meaning no late payments or maxed out balances—its positive payment record will appear on your credit reports and improve your credit scores.

✓ Seek a credit-builder loan. These specialized loans are available through many credit unions designed to help the credit invisible. Those with damaged credit establish good payment records and save money in the bargain. With a credit-builder loan, you borrow a small amount—typically less than $1,000—but instead of turning the cash over to you, the lender places it in an account you cannot access. (If you fail to make your loan payments as agreed, the lender can keep the loan amount.) After you pay off the loan in a series of monthly payments (typically lasting no more than one year), the savings account, possibly including any accrued interest, is turned over to you—and your payments are recorded in your credit reports at the national bureaus, thus making you “credit visible.” If you’re considering a credit-builder loan, be sure the lender reports payments to the credit bureaus; not all do.

The disadvantages of credit invisibility are numerous, but it’s possible to “be seen” and reap the benefits of greater access to credit with a bit of effort. 

Reporting rent and other, less traditional payment data to the credit reporting companies

You make several payments that credit reporting companies don’t currently receive information about but could be captured to record on-time payment history. This data could include monthly rent or cell phone payments. You can also leverage this opportunity by opting into self-reported payments through a company that offers this service. Fees and conditions may apply for such services, so do your homework before enrolling. 

Know how to access credit reports 

You have the right to request your credit report from each of the three nationwide credit reporting companies once every twelve months, free of charge. Having this information on-hand is the most critical first step to building or rebuilding credit. 

Take steps to correct errors.

You should actively take steps to correct any accuracy issues with your credit reports. Accuracy issues are the top-cited issues in credit reporting complaints we handle. 

You have the legal right to dispute errors on a report with the credit reporting company and the company that furnished the information to the reporting company, such as your lender. Companies are obligated to conduct a reasonable investigation of your dispute free of charge. The company that has provided the incorrect information must correct the error and notify all credit reporting companies to whom it provided the inaccurate information.

We have several programs to help repair credit so home-ownership dreams become a reality. Contact us and let us see how we can help you achieve these goals.