In May, the federal Consumer Financial Protection Bureau (CFPB) released a report estimating that approximately 26 million adults in the United States don’t have good credit because they have no credit records, rendering them “credit invisible.” Another 19 million have such limited credit records as to be “unscorable” by the three major national credit reporting agencies (Experian, Equifax and TransUnion), due to either insufficient credit history or lack of recently reported credit activity. This means that about one in five American adults falls into these groups. All other adults have a sufficient number of recently used credit accounts to receive a credit score under the models used by the agencies (i.e., FICO or VantageScore). Those having a credit score, in turn, can be determined by lenders to have good credit, bad credit or something in between.
The CFPB report suggests a correlation between income levels and whether a person is credit invisible or unscorable, as well as disparities among different ethnic groups. The data used by the CFPB was based on information from the CFPB’s “Consumer Credit Panel,” is a random sample of de-identified credit records purchased from one of the nationwide credit reporting agencies compared against 2010 United States Census Bureau data.
Many of the borrowers deemed credit invisible or unscorable actually have good credit because they have paid their bills and made loan repayments on time. However, because not all lenders or landlords report positive credit activity to the credit agencies these borrowers do not generate a credit score and are therefore penalized by higher interest rates. If you fall into one of these categories you probably want your good credit to be recognized by potential creditors so you can be rewarded with better loan terms. You can begin taking steps in this direction by reading the material in our Learning Center.