March 29, 2019

Serving the Credit Invisibles: Opportunities and Challenges for the Consumer Finance Industry

Credit invisibility remains a significant problem in the U.S., with an estimated 35-44 million Americans remaining outside of the credit mainstream. Banks and lenders use credit scores to evaluate whether to make loans to potential borrowers, including what interest rates to offer. Applicants must demonstrate through their credit histories that they are sufficiently low risk before they can access credit options that could potential lead to wealth building (such as taking out a home loan). Adults with limited or no credit histories, however, are disadvantaged in this regard and must surmount higher obstacles in getting credit on responsible terms. They may take out predatory, non-traditional forms of credit, or perhaps fail to qualify at all. In either case, however, their inability to access mainstream credit on affordable terms leads to an almost inevitable cycle of poverty. Prior research reveals that certain segments of the U.S. population are more likely to be credit invisible or thin file. These segments include, for example, Blacks, Hispanics, the elderly, young consumers who have yet to establish a credit background, recent immigrants, and low-income individuals.

In September 2018, the Consumer Financial Protection Bureau’s Office of Research published its third “Data Point” discussing American consumers who are “credit invisible.” These individuals lack a credit history with one of the national credit reporting agencies (TransUnion, Experian, and Equifax). Credit invisible adults also include those who have a credit file that contains either too little information (insufficient unscorable) or information that is deemed too old to be relied on to calculate a three-digit credit score (stale unscorable). The Bureau’s report, titled “The Geography of Credit Invisibility,” examines the connection between geography and credit invisibility. This research expands on the CFPB’s prior Data Points that analyzed “Credit Invisibles” and “Becoming Credit Visible.”

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