In today’s financial landscape, credit plays a crucial role in various aspects of our lives. From obtaining loans to securing favorable interest rates, having a strong credit history is essential. However, there is a significant portion of the population that remains largely unrecognized by traditional credit reporting systems – they are known as the credit invisible. In this article, we will explore what does it mean to be credit invisible and the challenges it poses.
What Does It Mean to Be Credit Invisible? Explained
What Does It Mean to Be Credit Invisible? Explained
We all know a credit score is a three-digit number that banks, financial institutions, and lenders check before they give out secured loans. However, to have a credit score you must have a credit history. When there is no credit history you become credit invisible since the lender has no point of reference based on which they can determine if you are a good debtor or not.
So when you ask what does it mean to be credit invisible it essentially means that Experian, Equifax, and TransUnion which are the three major credit bureaus have no credit history of yours. This is why they can’t determine your creditworthiness and you end up being in a tough spot just as a person with a poor or fair credit score would be.
What is Credit Invisibility?
The word invisible kind of gives away the meaning. What is credit invisibility can be answered simply by saying that you are invisible to the credit system. The most common reason for it is a lack of credit history. So to become visible to the credit system again such people can take a credit builder loan or a secured credit card and build a credit history as well as get a credit score.
You can easily confuse credit invisible with credit unscorable so make sure you understand the difference. While a credit invisible person has no credit history and is invisible to the credit system while a credit unscorable person is someone who has a credit history but either it is very old information or not enough information to calculate a credit score.
Why being Credit Invisible is Bad?
Now that you understand what does it mean to be credit invisible you must be wondering if it is bad to be credit invisible. We are afraid that it is true. There are a few reasons why it is bad and we shall see those reasons below.
- Since your credit history is a mystery you may find no givers. Obtaining loans or other credit options may no longer be an option for you. That means no credit cards, no mortgages, nothing.
- Landlords may not rent out their property to you because they too sometimes check your credit history to determine if you can manage payments or not.
- You might be forced to pay more for car insurance as credit score is an important factor for an insurance company to evaluate you. Other utility service providers may also charge you more than usual because you would come across as a riskier customer.
- If you are looking to get a job in the finance sector, then you must know that certain job roles might not be open to you if you are invisible to the credit system.
Hopefully, you now understand why being credit invisible is bad.
Credit Invisible Statistics
Most people think credit invisibility is not a big issue but that’s not true. Credit invisibility is a major issue that affects millions of people not just in the US but around the world. So now we will look at some Credit Invisible statistics concerning the US to get a better understanding of the situation.
- 28 million people in the US are considered to be credit invisible and a further 21 million people are credit unscorable. They make up 19% of the total population of the US. 11% by credit invisible and 8% by credit unscorable.
- Of all communities, black people have the highest credit invisibility rate at 28% and they are followed by 26% of Hispanic people, and 16% of white and Asian people.
- 40% of credit-invisible people are those who are aged less than 25. 64.5% of people aged 18 or 19 are credit invincible while only 0.4% of them are credit unscorable. 28.9% of people aged over 70 are credit invisible and an additional 4% of them are credit unscorable.
- Almost 30% of people from poor neighborhoods are credit invisible while 16% are credit unscorable. In high-income neighborhoods, these percentages are 4 and 5% respectively.
These credit invisible statistics must tell you just how important it is to have a credit score even if it’s just a fair score as opposed to not having one at all.
Cross-reference: Millions Miss Out Because They Are ‘Credit Invisible’
How to Evaluate Credit Invisibles?
While a credit-invisible person may not easily get loans, credit cards, or other financial tools it is not like they are fully ignored. There are still ways for people with credit invisibility to get access to financial aid but for that, they would be evaluated a bit differently. So now we will tell you how to evaluate credit invisibles.
- Payment History: By looking at the non-credit card bills paid by a person one can get an idea of how good a person will be with paying loan or credit card payments. Payments of utility bills, child care bills, rent and other such stuff can be considered here.
- Asset Ownership: Your account balance can play a strong role here. If you can show the creditor that you have enough resources to pay off credit amounts then they won’t have to think twice before giving you a loan or credit card.
- Income Data: If you are someone whose income has been good and consistent for quite some time now then you can use that to show yourself to be a good debtor.
Being credit invisible poses significant challenges, limiting access to financial opportunities. Establishing a credit history through responsible credit use is crucial to overcome this status and unlock better financial prospects.