10% of Americans are "Credit Invisible"

About one in 10 American adults havernno credit history according to a report from the Consumer Financial ProtectionrnBureau, a total of 26 million persons who are “credit invisible.”  These are persons who have no information onrnfile with any of the nationwide consumer reporting agencies.</p

Creditrnhistories contain data on a consumers bank loans, car loans, credit card bills,rnstudent loans, and mortgages; details about the terms of credit, totals owed,rnpayment histories, and any liens or judgments that may have been incurred.  This information is used by the agencies tornproduce three digit credit scores. Most decisions to grant credit and setrninterest rates for loans are made based on information contained in creditrnreports and on the resulting credit scores. As a result, those consumers whornhave a limited or nonexistent credit history face greater hurdles in gettingrncredit. </p

CFPB says that in broad terms, those with limited creditrnhistories can be classified as either consumers without a credit report, thern”credit invisibles,” or as a second group, the “unscored.”  These are consumers who do not have enoughrncredit history to generate a credit score or who have credit reports thatrncontain “stale” or not recently reported information.  CFPB estimates that 19 million consumers have unscored credit records, about half of whichrnare considered unable to be scored, a definition that differs across scoringrnmodels, and half that lack up-to-date information.  </p

Fair Isaac Corporation which produces the widely used FICOrncredit score places the number of unscored Americans at 53 million, slightlyrnhigher than CFPB’s total of those either lacking any history or with historiesrnthat cannot be scored.  CFPB says that aboutrn189 million Americans have credit records sufficient for scoring.  </p

The Bureau finds that Black and Hispanic consumers and those inrnlow-income neighborhoods are more likely to lack any file with a nationwidernreporting bureau or insufficient history to generate a credit score.  Of the consumers living in low-incomernneighborhoods, almost 30 percent are credit invisible and an additional 15rnpercent have records that are unscored. In contrast, in upper-incomernneighborhoods, only 4 percent of the population is credit invisible and anotherrn5 percent have records that cannot be scored under the widely-used model. </p

About 15 percent of Black and Hispanic consumers are creditrninvisibles compared to 9 percent of White consumers. An additional 13 percentrnof Black consumers and 12 percent of Hispanic consumers have records that can’trnbe scores compared to 7 percent of White consumers. CFPB analysis suggests thatrnthese differences across racial and ethnic groups materialize early in thernadult lives of these consumers and persist thereafter. </p

CRPB Director Richard Cordray said “Credit reports andrncredit scores can determine the terms of people’s mortgages, whether theyrnqualify for auto loans, or if they are eligible for different creditrncards.  As long as they follow the requirements in the law, potentialrnemployers may review a consumer’s credit report as a factor in making a hiringrndecision.  Landlords may also consider this information before decidingrnwhether to approve a potential renter or how much money to require for arnsecurity deposit. </p

“Sornwhen consumers do not have a credit report, or have too little information tornhave a credit score, the impact on their lives can be profound.  It canrnpreclude them from accessing credit and taking advantage of certainrnopportunities.  And given that we found that consumers in low-incomernneighborhoods are more likely to be credit invisible or unscored, this may bernlimiting opportunities for some of the most economically vulnerable consumers.”  </p

A pilotrnprogram currently underway by Equifax, Lexis/Nexis Risk Solutions, and FICO mayrnaddress some of the problems noted by the Bureau. Twelve of the largest creditrncard issuers are using alternative data to identify creditworthy individualsrnwho would not otherwise be candidates for traditional credit.   Thernnew scoring model uses information on payment histories with utility andrntelecom companies to help under-banked and disadvantaged people gain creditrnaccess.  </p

FICOrnestimates that the new model will allow scoring an additional 15 millionrnconsumers.  The companies will completernthe pilot program shortly and expect to make the alternative model available tornmore lenders later this year. Based on statements made by FICO at a creditrnscoring summit hosted by the National Association of Realtors in early April,rnwe expect those other lenders to include those in the mortgage industry.  

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