If you do not have any credit history with one of the credit reporting companies (Equifax, Experian, TransUnion), you’re considered to be “credit invisible.” The Consumer Financial Protection Bureau estimates about 26 million people fall into that category, which comes out to one in ten adults.
Then there are people with little or insufficient credit history, which comes to about 19 million. These people are considered “credit unscoreable.”
Together, that’s 45 million people who may not have access to the credit they need, or about 20% of the adult population.
How Credit Reports Work
You aren’t finished with report cards after school. Credit reports work the same way: they contain details of your financial track record and you’re given a score from Fair Issac Corporation (FICO) or VantageScore Solutions.
Lenders base their decision on whether or not to loan money (and what rate to offer) off the credit report and score. While the exact mathematical formula is not public knowledge, the following impacts your credit:
- Whether or not you pay bills on time
- Types of loans you’ve already taken out
- Length of credit history
- Amount of revolving credit
As you can see, if you don’t have any bills or loans, you won’t have a credit report.
Impact of Being Invisible or Unscoreable
Falling into either category severely limits your options when looking for financial opportunities. This can impact:
- Your ability to get certain jobs
- Applying to rent an apartment
- Obtaining a cell phone or other utilities
- Getting emergency funds
If you find yourself in this situation, there are things you can do to establish good credit.
Take Action to Stay Ahead
You can build your credit history responsibly by opening a Credit Builder Loan.
Credit unions typically offer these loans, in which the instituition will deposit a small amount of money (usually up to $1000) for you into a locked savings account, and you make monthly payments over the course of 6-24 months. The payments are reported to credit reporting companies, and you get the money at the end of your term.
You should also make a note to check your credit report every year. This can be done for free through annualcreditreport.com. Look for any errors, and report them immediately if you do see something wrong.