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The Consumer Financial Protection Bureau (CFPB) has published a report finding that 26 million Americans are “credit invisible.” This figure indicates that one in every 10 adults do not have any credit history with a nationwide consumer reporting agency. The report also found that Black consumers, Hispanic consumers, and consumers in low-income neighborhoods are more likely to have no credit history with a nationwide consumer reporting agency or not enough current credit history to produce a credit score.
“Today’s report sheds light on the millions of Americans who are credit invisible,” said CFPB Director Richard Cordray. “A limited credit history can create real barriers for consumers looking to access the credit that is often so essential to meaningful opportunity—to get an education, start a business, or buy a house. Further, some of the most economically vulnerable consumers are more likely to be credit invisible.”
The three nationwide consumer reporting agencies, also called credit bureaus, generate credit reports that track a consumer’s credit history. Credit reports and the three-digit credit scores that are based on those reports play an increasingly important role in the lives of American consumers. Most decisions to grant credit and set interest rates for loans are made based on information contained in credit reports. As a result, those consumers who have a limited or nonexistent credit history face greater hurdles in getting credit.
Consumers’ credit histories reflect how they have repaid their debts. Consumers’ credit histories may contain information about bank loans, car loans, credit card bills, student loans, and mortgages. They may also contain details about the terms of consumers’ credit, how much is owed to creditors, consumers’ payment histories, and court judgments or liens against them. Credit history helps the consumer reporting agencies determine how likely consumers are to repay their debts. The agencies use that information to produce credit reports and scores.
In broad terms, consumers with limited credit histories can be placed into two groups. The first group is consumers without a credit report, or the “credit invisibles.” The second group, the “unscored,” includes consumers who do not have enough credit history to generate a credit score or who have credit reports that contain “stale” or not recently reported information. The exact definition of what constitutes insufficient or stale information differs across credit scoring models, as each model uses its own proprietary definition.
Today’s report is designed to shed more light on the number of consumers and the characteristics of those consumers who have little to no credit record at the nationwide consumer reporting agencies. The report found that:
►Twenty-six million consumers are credit invisible: About one in 10 Americans can be considered credit invisible because they do not have any credit record.About 189 million Americans have credit records that can be scored.
►Nineteen million consumers have unscored credit records: About 8 percent of the adult population has credit records that are considered unscorable based on a widely-used credit scoring model. Those records are almost evenly split between the 9.9 million that have an insufficient credit history and the 9.6 million that lack a recent credit history.
►Consumers in low-income neighborhoods are more likely to be credit invisible or to have an unscored record: Of the consumers who live in low-income neighborhoods, almost 30 percent are credit invisible and an additional 15 percent have records that are unscored. These percentages are notably lower in higher-income neighborhoods. For example, in upper-income neighborhoods, only 4 percent of the population is credit invisible and another 5 percent are unscorable under the widely-used model.
►Black and Hispanic consumers are more likely to have limited credit records: Black and Hispanic consumers are considerably more likely to be credit invisible or have unscored credit records than White or Asian consumers. About 15 percent of Black and Hispanic consumers are credit invisibles compared to 9 percent of White consumers. An additional 13 percent of Black consumers and 12 percent of Hispanic consumers have unscorable records under the widely-used model compared to seven percent of White consumers. CFPB analysis suggests that these differences across racial and ethnic groups materialize early in the adult lives of these consumers and persist thereafter.
This analysis was conducted using information from the CFPB’s Consumer Credit Panel, which is a random sample of de-identified credit records purchased from one of the nationwide credit reporting agencies and is representative of the population with credit records. By comparing information in the credit panel from December 2010 with 2010 Census data, the Bureau was able to estimate the number of consumers who were credit invisible or had unscored credit records.