New study reveals that 1 in 10 American adults are “credit invisible.”

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Every adult in the United States has a credit score, right? Not so fast, as recent studies show that a large percentage of the population actually are without a score at all, or have credit histories that are so sparse that they’re unusable. Those are the findings of a study released last week by the Consumer Financial Protection Bureau. The CHPB reported that an astounding 26 million adult Americans, or one in ten in the population, have no credit reporting on file with Equifax, Experian, or Transunion, the big three credit reporting agencies.

Almost as prevalent are the 19 million “credit invisible” consumers, whose credit information is so outdated, incomplete, or spotty that their scores are unusable. Together, that adds up to about 45 million people who should have credit scores but can’t take out a loan, get a credit card, or apply for a mortgage. That comes at a significant cost, holding them back from functioning in the financial sector in even basic ways and deterring them from economic stability.

According to the CFPB report, that leaves only 188.6 million American adults with credit reports that are usable and reported, or 80% of the population.

“A limited credit history can create real barriers for consumers,” said CFPB Director Richard Cordray. “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.”

When he mentions people who are “economically-vulnerable” he’s referring to the study’s findings that Hispanic and African American minorities were reported as being disproportionately credit invisible, as well as people who live in low-income neighborhoods. In fact, almost 30 percent of those who live in such areas are credit invisible, and another 15 percent had credit that was unusable, or “light files.” In contrast, only 4 percent of consumers who live in upper-income neighborhoods are credit invisible and only 5 percent have thin files.

But perhaps the largest demographic of people with unusable credit is young adults. Over 80 percent of 18 and 19-year olds are credit invisible, a number that drops to 40 percent once they reach 20 to 24 years old. Credit experts attribute those gaudy percentages to younger people not having the time, education, or inclination to properly build up their credit profile.

New immigrants also make up a significant portion of the total number of credit invisible. Others went through a bankruptcy in the past and have failed to rebuild or take out any new credit since.

But no matter who you are, there are methods to start opening accounts and building a credit history in a responsible manner. Prepaid debit cards, secure credit cards, and becoming a co-signer on a parent’s credit card are all ways to establish credit. Some credit unions now have credit builder loans, allowing a consumer to make payments into an interest-bearing account without receiving any funds at first, but reporting to the credit bureaus.

To help give these millions of credit invisible and credit-challenged people a fresh start, the Fair Isaac Corp, or FICO, has released a non-traditional way of adding common accounts to credit reporting databases. Their new system will allow information from a consumer’s telecommunications bills, utility bills, and property records to be formatted into a credit score. So now if you have a cell phone bill, cable bill, or apartment lease, it’s possible to arrange for that information to help build your credit, granted you make your payments on time.

“We want to observe those consumers that have been paying, for example, their mobile, landline and cable bills responsibly,” said FICO senior director Dave Shellenberger. “We know that these can indicate good future payments for other types of credit options.”

The new scoring model will use data from the National Consumer Telecom & Utilities and LexisNexis Risk Solutions for property records. It’s still a pilot program, with 12 credit card companies trying it out before it’s expected release to lenders by the end of the year. But FICO analysts hope it will provide a base of credit for almost 10 million credit invisibles and grow to help many more.


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