We all try to stay on top of our credit history and FICO score. We also try managing our balances, limits and other factors in order to increase our score. But while many of us worry about our credit rating not being high enough, a new report finds that 26 million Americans have no credit rating at all, making them “credit invisible”. And “no credit” is worse than “bad credit”.
The Consumer Financial Protection Bureau (CFPB) published the report, which finds that one in 10 adults have no credit history, many of them black, Hispanic or living in low-income areas. In addition to those so-called credit invisibles, an additional 19 million have credit reports that are so limited or out of date that they are unscorable. In other words, there’s about 45 million American consumers without credit scores.
“Today’s report sheds light on the millions of Americans who are credit invisible,” said CFPB Director Richard Cordray. “A limited credit history can create real barriers for consumers looking to access the credit that is often so essential to meaningful opportunity — to get an education, start a business, or buy a house. Further, some of the most economically vulnerable consumers are more likely to be credit invisible.”
Blacks and Hispanics were significantly more likely to be without a credit score, based on the study, with a 15 percent rate of credit invisibility, compared to 9 percent for whites. Having a low income was another major predictor of whether someone had a credit score: census tract data showed that nearly 30 percent of consumers in low-income neighborhoods were credit invisible and another 15 percent had credit records that could not be scored. In upper-income neighborhoods, just 4 percent of consumers were credit invisible and an additional 5 percent were unscorable.
Younger adults were much more likely to be credit invisible or not have their credit record scored. More than 80 percent of 18 and 19 year olds were in that category, largely because they had had no time to establish a credit history, and that figure fell below 40 percent for those aged 20 to 24.
How to build/rebuild your credit history
Consumers have a number of possible ways to build or rebuild a credit history. One thing they can do is obtain a secured credit card. A credit score is not necessary, and using the card to draw on money you deposit with a bank will help you build a credit history. If you chose the Discover It Secured card, then it will graduate to a unsecured card without taking antoher credit inquiry hit.
Another option is becoming an authorized user on someone else’s card is another option for consumers. College students may do this with a parent’s card, for example. They also establish some credit history when they have a student loan. Even when they are in school and payments are deferred, the loan will show up as part of their credit history.
A less-known option is to take out a credit builder loan from a credit union. Instead of receiving the loan money upfront, a consumer makes payments into an interest-bearing account for the life of the loan. At the end of that time, the consumer receives the money with any accrued interest.
Stay on top of your credit history
Once you start building your credit history, you should also stay on top of it. Check it regularly, so you know your score but also to notice any unfamiliar inquiries that might be signs of identity theft. It seems like common sense, but 35% of Americans have never checked their credit report.
You are entitled to a free credit report from TransUnion, Equifax and Experian, and can receive one by going to AnnualCreditReport.com or Credit Sesame which also has many other useful tools to help you understand your credit information.
The full report is available online.