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According to Consumer Financial Protection Bureau's report published in 2015, one in every ten adults does not have any credit history with one of the three major credit bureaus. That's 26 million "credit invisible" Americans.
Credit invisible means that a person has no credit history with any of the three major credit bureaus (Experian, TransUnion, and Equifax). Having no credit history or thin file, which is not enough no determine a credit score, means you may have a harder time accessing credit products, or it can cost you money.
No credit history can hold you back when you need to rent a house or apartment, get a mortgage, buy a car, or even get a job because your potential lenders won't find any results when they check your credit reports. Without information contained in credit reports, lenders won't be able to evaluate your creditworthiness, sense of responsibility, trustworthiness, and likelihood to manage your exposure to risk. And as a result, you will be turned down or offered much higher interest rates.
Luckily there are ways to avoid being credit invisible. The credit invisibles can start building their credit history and become "credit visible". Here are some of the options:
- Secured credit cards: you can apply for a secured credit card, which is a great option for beginners. Secured cards require a security deposit that can be between $50 and $300. Other than the deposit, secured credit cards work like traditional credit cards.
- Retail store cards: many department stores, gas stations or retail chains offer credit cards. These cards are usually easier to get. Store cards tend to have higher interest rates and lower credit limits. So, if you decide to open a store card, make sure you pay the card balance in full every month to avoid interest charges.
- Credit builder loans: credit unions and online lenders can offer credit builder loans. When you open a credit builder loan like the Self - Credit Builder Account, the lender deposits a small amount into a locked savings account and then you pay back with small payments over 6 to 24 months. These payments are reported to the credit bureaus. Once the loan term ends, you receive the accumulated money back in total.
- Authorized user: you can ask a family member or friend to add you as an authorized user to their existing credit card. However, not all banks report authorized users, and the primary cardholder should manage their credit account responsibly. Otherwise you won't benefit from being an authorized user.
Once you become "credit visible", you can qualify for better credit cards and other financial products.
