Are You Credit Invisible?

How the 10% of American Adults with No Credit History Can Establish One

Are You Credit Invisible?
January 26, 2017

Wouldn't it be fun to be invisible? Not if invisibility refers to your credit rating. When you are credit invisible, you have no credit history with any of the three major credit-reporting agencies (Equifax, TransUnion, and Experian). You may have credit activity, but if it isn't reported to the agencies they cannot compile a credit score — and without a credit score, it is difficult to qualify for loans or credit cards because potential lenders cannot assess the risk that you represent.

As of 2015, the Consumer Financial Protection Bureau (CFPB) estimated the number of individuals without a credit history at 26 million U.S. adults — approximately 10% of the adult American population. Another 19 million have credit records that cannot be scored by traditional scoring means because their credit history is sparse and/or not recent.

Several groups are attempting to find ways to sort this group into those who pose true credit risks and those who pose a low risk based on available information.

An April 2016 document issued by the National Credit Union Administration (NCUA) outlined potential "credit-invisible loan programs" targeted at this group. The Fair Isaac Company, creators of the FICO scoring system, have introduced the FICO XD scoring program, which compiles available payment histories (cell phone/cable TV providers, etc.), property data, and public records to assess risk on the credit-invisible population.

However, if you fall into this situation, why wait for the agencies to find a way to assess your risk? Start building your own credit history and show potential lenders that you pose a relatively low credit risk — otherwise, you may have a harder time acquiring a loan when the stakes are higher.

One of the simplest ways to establish credit is to get a secured credit card, which acts like a traditional credit card, but is backed by a cash deposit. The cash deposit removes the need for a credit score. "With the secured card, basically you give money to the bank and they give you a credit card with that same money back on the card," explains NerdWallet Credit and Banking Expert Sean McQuay. "As long as you pay off that credit card balance in full every month, you are building your credit." Use a secured card wisely by spending well below the credit limit and paying the bills promptly each month, and in a relatively short time, you will have a reportable credit history. Before signing up for a card, verify that the card issuer reports that card to the credit bureaus — not all cards are reported.

You can also become an authorized user on another person's card or get a co-signer with a loan to build credit, but those paths bring other people into your credit-building process. Be sure that both you and the other party understand the risks involved before following this path.

Consider investigating options at your local credit union. You may qualify for membership in a credit union that has embarked on a credit-invisible loan program per the NCUA's outline. Even without a targeted program, credit unions are more likely to be willing to take a risk on your incomplete record if you have some alternative measure of your creditworthiness. "Credit unions generally have a mentality of people helping people," says Adam Carroll, Founder and Chief Education Officer of National Financial Educators. "As a result, they're offering products and services that a bank may not offer."

One option you should avoid is high-interest short-term loans such as payday loans. Such loans are rarely if ever reported to the major credit bureaus, unless there is an adverse event — you default and a debt collector reports you, or legal action is taken against you for repayment.

If you are credit invisible yet creditworthy, it's time to shed your invisibility and take steps to be seen by the credit agencies. Building a solid credit history takes time, so don’t wait until you need major financing like a mortgage loan to make your presence known to lenders.

You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips.

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Erin | 10.25.16 @ 15:42
Thankfully I don't have this problem myself, but I know I was nervous when applying for my first credit card because I did not have a history. Those payday loans are awful. I wish there was a way to control them better. I will pass this on to some people I know who could use the information. Thanks!
Jane | 10.25.16 @ 15:45
When I was very young, and had my first job, I took out a $500 loan from my local bank. I made each payment on time. When it was paid off, I had something on my credit report, and was then able to get a local department store credit card approved. It took conscious steps for me to establish my credit history.
Kamie | 10.25.16 @ 15:51
I found it odd that I am invisible but not always invisible also. My ISP could not find anything on me, but my phone company could. It did not make much sense, and kind of was a stinker, as I had to pay more for the deposit on my ISP because I am a ghost.
Nancy | 10.25.16 @ 15:52
I will definitely pass this on to a few people. There are so many mistakes that we make when we are young and first starting out building your credit. Tips like these are a great start.
Zanna | 10.25.16 @ 19:57
We are long-time members of a credit union and I highly recommend it for building credit, and for a great member focused service!
Saving in WI | 10.26.16 @ 13:14
Moneytips, Credit cards are a top 5 reason why people file for bankruptcy. Good credit is a nice thing to have, but to tell people to purposely go into debt to achieve a credit score is irresponsible at best. DO NOT use credit cards!
$commenter.renderDisplayableName() | 12.02.20 @ 03:11