The Problem of "Invisible" Credit

Rental Kharma

Brenda Robinson
Financial Adviser in Easton, PA

The Problem of
October 12, 2015

The Problem of "Invisible" Credit

Recently, the Consumer Financial Protection Bureau (CFPB) released a report on Americans living with no credit score, individuals who the CFPB coined “credit invisibles.” According to the CFPB, there are currently over twenty-six million credit invisibles living in the United States today. This is a surprisingly large number, particularly considering the importance of having good credit in today’s day and age. Credit scores are an essential measurement used by lenders and mortgage brokers across the nation; without these three digits, credit invisibles will have a difficult time purchasing a home or car, or even renting an apartment. And if they are offered a loan or a mortgage, it will likely come along with a hefty interest rate.

According to the CFPB, there are two types of “credit invisible” Americans: those who have no score whatsoever, and those who have a credit history so limited that it is considered unscorable. In addition to the aforementioned twenty-six million credit invisibles, this second group consists of nineteen million individuals—bringing the total number of Americans who do not have viable credit scores to a whopping forty-five million. No matter how fiscally responsible these individuals are, if they are interested in making a large purchase or taking out a loan, they will face an uphill battle that is likely to cost them more money than it would an American with established credit.

The CFPB uncovered distinct trends regarding who is most likely to be credit invisible. Only 9% of Americans who live in high-income neighborhoods get by without a functional credit score, but in low–income neighborhoods, this number jumps to 45%. In addition, Hispanics and Blacks are more likely than Whites or Asians to go without a credit score, and this holds true regardless of age. Here at Rental Kharma, we believe that no one should be excluded from access to loans, homes, or vehicles simply because they do not have credit history. By using our client’s rental payments to build their credit, our service is one of very few that can help credit invisible Americans establish positive credit history. In fact, many of our clients come to us with no credit score. We reached out to some of these individuals in order to find hear more about their experiences getting by without credit.

Roland J. and his wife Lanae recently had a baby and are hoping to become homeowners. However, Roland spent much of his life avoiding the credit industry. After using Rental Kharma, his TransUnion credit score went up to 650.

“I’m terrified of credit cards. I don’t take loans out. I’ve never owned a vehicle. Before this apartment, I didn’t even have any property in my name.” – Roland

“The main reason we went to Rental Kharma was because we needed a loan. We just had a baby, so naturally we have lots of new expenses. He has no credit whatsoever; he has never had a school loan, he has never gotten a car, he hasn’t had any of that. So because of that, nobody will even look at him for it. He has income, so we tried to get a bigger vehicle, but because he doesn’t have a credit score, we couldn’t do that. We tried to get a house, couldn’t do that. We tried to get a regular loan and couldn’t do that because he has absolutely no credit. Zero. And he is 24 so you figure by now you would have gotten himself in a little bit of trouble. But he is terrified of debt so he refused!” – Lanae

Shantaria S. signed up for Rental Kharma while credit invisible and her TransUnion credit score went up to 630.

“It’s been rough and difficult and a little confusing. I don’t understand how I’m supposed to build credit if I can’t get credit cards. I have tried for department store credit cards and recently I tried for a major card, and I’ve never had any luck. So it’s been rough. I’d been getting the idea that there is no other way to create credit than reporting rent. When I wanted to get a vehicle, they couldn’t pull the credit report on me. It doesn’t tell them anything. It doesn’t say zero, it doesn’t have a score at all.” – Shantaria

It can be difficult to establish credit without an existing score, but it is by no means impossible. For most individuals who lease their homes, paying rent is their largest expense each month—and yet none of these on time payments are tracked by the credit industry. Rental Kharma can make these sizable payments count by ensuring that they appear on your credit report.

In addition to Rental Kharma, another method of building credit is to use a secured credit card. Secured credit cards require a cash deposit that becomes the credit line for the account. This allows individuals to borrow their own money, in doing so establishing a payment record that will contribute to their overall score. Another, similar option is a credit builder loan. These loans may or may not require a deposit, and they can be taken out in small amounts and paid back in very compressed, structured time periods.


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