Research found that approximately 26 million American adults do not have a history with national credit reporting agencies such as Equifax, Experian, and TransUnion. In addition to so-called invisible credits, an additional $ 19 million has credit reports so limited or out of date that they are impossible to note. In other words, 45 million American consumers live without a credit score.
Blacks and Hispanics were significantly more likely to have no credit score, according to the study, with a credit invisibility rate of 15%, compared to 9% for whites. Having a low income was another major predictor of the existence of a credit score: census tract data showed that nearly 30% of consumers in low-income neighborhoods did not have a credit score. credit and 15% had credit records that could not be rated. In affluent neighborhoods, only 4% of consumers had no credit and an additional 5% were unremarkable.
“When consumers don’t have a credit history, or have too little information to have a credit score, the impact on their lives can be profound,” said Richard Cordray, director of CFPB, in an appeal announcing the study. “And given that we’ve found that consumers in lower-income neighborhoods are more likely to have invisible or unrated credit, this may limit opportunities for some of the most economically vulnerable consumers.”
Young adults were much more likely to have invisible credit or not have their credit report rated. More than 80 percent of 18- and 19-year-olds fell into this category, largely because they hadn’t had time to establish a credit history, and that figure fell below 40 percent for 20 to 24 years old. (Tweet this) After the age of 60, the incidence of invisibility or credit unscorability increases again. (However, the increase was not due to outdated information. The incidence of outdated information among the elderly was lower than among consumers aged 25 to 29.)
John Ulzheimer, president of consumer education at Sesame Credit, pointed out two reasons why so many young American adults do not have a credit score. First, after the MAP law enacted in 2009, consumers under the age of 21 had to prove they had a job or a co-signer to get a credit card. The goal was to stop young consumers from taking on credit card debt they couldn’t pay off, he said, “but if you stop people from getting credit, you’re also going to restrict their ability to establish a credit report “.
Another factor is the use of prepaid debit cards, Ulzheimer said. A lot of problems associated with prepaid debit cards in the past, as fees that were high and not always easy to understand, have gone down, according to one to study by The Pew Charitable Trusts. But prepaid card transactions don’t help a consumer build a credit history.
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Consumers have a number of possible ways to build or rebuild a credit history. One thing they can do is get a secured credit card. A credit score is not necessary, and using the card to withdraw money you deposit with a bank will help you build a credit history.
If you go this route, be sure to choose a card that will report your payment history to all three credit rating agencies, Ulzheimer warned. Not all of them do, and “unrelated to the three, it’s like a tree falling in the woods, ”he said, because your credit history will not be known.
Becoming an authorized user on someone else’s card is another option for consumers. College students can do this with a parent’s card, for example. They also build a credit history when they have a student loan. Even when they’re in school and payments are deferred, the loan will show up in their credit history, Ulzheimer said.
Another lesser-known option is to take out a builder loan from a credit union. Instead of receiving the loan money up front, a consumer makes payments into an interest-bearing account during the term of the loan. At the end of this period, the consumer receives the money with accrued interest.
Whatever you do, make your credit card loan payments on time and don’t borrow too much. The amounts you owe Account for 30% of your credit score, and your payment history is an additional 35%, according to FICO, a predictive analytics company that develops credit scores.
Building a credit history will take time and attention, but it can be done. And that’s better than being invisible when it comes to credit.