Who are the Credit Invisible
By: Geff Woodward
According to recent studies, out of 255 million adults in the United States, 49 million are not scorable using conventional credit scores. That means that they are either “credit invisible” or “credit unscorable” and therefore cannot access credit.
The term "credit invisible" refers to individuals who have no credit history on record with the major credit bureaus, making it difficult for them to obtain traditional forms of credit, such as loans or credit cards. These individuals are often seen as "invisible" to lenders because there is no information available to assess their creditworthiness.
Credit invisibility can affect a wide range of people, including:
Young adults: Young people who have just started their financial journey and have not yet taken out loans or credit cards often have little to no credit history.
Recent immigrants: People who have recently moved to a new country may not have a credit history in their new country.
Low-income individuals: Those with limited financial resources may not have access to traditional credit and therefore may not have an extensive credit history.
Older adults: Some seniors who have paid off all their debts and no longer use credit may also become credit invisible over time.
Being “credit invisible” can have a significant impact on a person's ability to access financial services and secure favorable terms on loans. Contrary to what is normally thought, the reasons behind being categorized as “credit invisible” normally have nothing to do with someone’s creditworthiness. Usually, they are consumers who do not have accounts or consumers who have never used credit.
On the other hand, there are also the "credit unscorable," which are individuals for whom credit bureaus and scoring models are also unable to generate a credit score. This typically occurs when there is insufficient credit history or information available to assess a person's creditworthiness. There are several reasons why someone might be considered “credit unscorable”:
Limited Credit History: Like the “credit invisible”, individuals with limited credit history often fall into the “credit unscorable” category. This can include young adults who are just starting to establish credit or recent immigrants who are new to the credit system.
Sparse Credit History: Some people may have a very limited credit history with only a few accounts or transactions, making it challenging for credit scoring models to calculate a score accurately.
Inactive Credit Accounts: If a person has had credit accounts in the past but hasn't used them for an extended period, their credit file may become too inactive to generate a score.
No Recent Activity: Lack of recent credit activity, such as applying for new credit or making payments on existing accounts, can also lead to being “credit unscorable”.
Unusual Circumstances: In some cases, unusual financial circumstances or factors can make it difficult for scoring models to generate a score. This might include identity theft, inconsistencies in credit reports, or other unique situations.
The “credit invisible” population is currently made up of nearly 28 million people, and the “credit unscorable” population currently comprises 21 million people. These untapped segments constitute approximately 18% of the US adult population, a big chunk of the client base for whom financial institutions are rushing to reach, serve, and u;timately would like to set loyalty patterns.
Whether “credit invisible” or “credit unscorable”, it can be really difficult to pull oneself out of these precarious financial circumstances. With VeraScore, we provide this significant percentage of the population with a way out. A VeraScoreTM Financial Health Score will allow these currently underserved individuals to demonstrate that they are financially responsible enough to handle a loan. What this demographic needs is a chance - a helping hand up to get them started. At VeraScore, we believe that everyone deserves a chance, regardless of their age, race, gender, or current economic situation.