Are You Considered Credit Invisible?

By Jeremy Sonne

You know the dangers of having bad credit, but what about no credit? What can you do if you are credit invisible?

According to the Consumer Financial Protection Bureau, credit invisible adults are those with no credit histories, or credit histories that are so small that the national reporting agencies  - TransUnion, Experian and Equifax - cannot calculate a three-digit credit score for them. 

45 million American adults do not have a credit score. An additional 19 million Americans don’t have enough credit to validate a score.

The importance of credit

Credit scores were developed to help lenders and banks evaluate an individual as a potential borrower. The score also helps lenders decide if they can provide a loan to that individual and if so, what kind of interest rate would be possible. 

Credit histories are critical for many aspects of life: home loans, renting apartments, getting a cell phone, credit cards, auto loans and more. See our article about credit reports and apartments.

Having no credit has a profound effect on your life. It costs people significantly more money to build a life without credit, often times leading to a cycle of poverty. In fact, 30% of those in low-income neighborhoods are credit invisible.

Building your credit

Some people think it's strange that there are adults with no credit. But common payments - medical providers, cell phone companies and utilities - typically are not reported to credit bureaus. 

You normally build credit by using credit, but it is very difficult to obtain a credit card with no credit. It is a vicious cycle.

How to become credit visible

If you have a family member who does have credit, that person can co-sign a loan with you. These loans can be auto, personal or even some credit cards. This allows the invisible consumer to build their credit. After establishing a credit history, they can apply for lines of credit on their own.

Another option is to get a secured credit card. Secured credit cards operate like regular credit cards, but hold a certain amount of cash as collateral. This lessens the risk for the bank so existing credit is not needed. Most secured credit cards have a process for turning that card into an unsecured credit card after credit histories are established. 

Our final option is to use a credit builder loan, such as the one offered by Self, to help you establish a credit history for the first time. This can be a good option because you do not need to make a large deposit up front, nor do you need to have someone co-sign for you.

About the Author

Jeremy Sonne is a freelance writer who occasionally contributes to Self.

Written on July 16, 2015

Self is a venture-backed startup that helps people build credit and savings.
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Disclaimer: Self is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.

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