How to create a clearer path for credit invisibles


Posted: December 06, 2021 | Word Count: 497

Financial experts have been talking a lot about “credit invisibles” lately. The term refers to people who do not meet the minimum criteria to generate a credit score. Having a good credit score is important for a variety of reasons, but for many people struggling to even establish a score, this goal can seem unreachable.

Why do some people not have credit scores?

It's not a simple answer. There are numerous reasons why some people don't have one or why their credit report doesn't show up during inquiries. According to a recent report from VantageScore, approximately 37 million Americans are unscoreable when conventional credit score models are used but are scoreable with their system.

Why is that? It's typically because they either:

  • Lack a credit history as a young adult.
  • Avoid credit and rely on cash.
  • Are an immigrant and lack credit history in the United States.

Not having a credit history can present financial roadblocks now and in the future. Fixing the issue entirely will require a national discussion about financial inclusion. However, there are things consumers and financial institutions can do to help these credit invisibles establish a healthy financial profile.

How can people become credit visible?

Here are a few things people can do to put themselves on the financial map if they don’t have a credit score:

Take out a credit builder loan

These loans tend to be relatively modest, making them easy to take on and pay back for responsible borrowers. Credit builder loans usually have a balance of around $1,000 and can be issued by financial institutions like credit unions.

While borrowers can pay off the loan over a specified period, lenders can report this activity to the credit bureaus. That way, consumers can start building a solid credit history if they make timely payments.

Open a secured credit card

Secured cards work like regular credit cards, as you can use them to make purchases and pay them off later. The difference is that secured cards require a security deposit to open, in which the amount can vary depending on the card. The deposit amount could be the same amount as your line of credit. That being said, there may be additional approval requirements.

Once the card is authorized, the issuer can send account information to the three major bureaus so consumers can get a score.

Working toward solutions for credit invisibles

With the expansion of credit for credit invisibles, financial institutions can help these people build the credit they need to reach certain financial milestones. And with responsible use of credit, these individuals can stand a better chance at getting more favorable terms on future loans.

VantageScore’s state-of-the-art scoring models have scored millions of credit invisibles over the past few years with their updated 3.0 and 4.0 scoring models, including 10.7 million Black and Hispanics and 1.75 million Asian Americans/Pacific Islanders and Native Americans. For more information, you can check out VantageScore’s website today.

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