A report titled "Data Point: Credit Invisibles" published Tuesday by the Consumer Financial Protection Bureau (CFPB) Office of Research found that 26 million American adults (about 10 percent) do not have a credit history with any of the three nationwide consumer reporting agencies, termed as "credit invisible" by the Bureau's director.
Also according to the report, black and Hispanic consumers as well as those in low-income neighborhoods are more likely to have either no history or not enough credit history to produce a score with a nationwide consumer reporting agency.
"Today’s report sheds light on the millions of Americans who are credit invisible," CFPB Director Richard Cordray said. "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."
Three-digit credit scores generated by one of the three nationwide consumer reporting agencies, also called bureaus (Equifax, Experian, and Transunion) are important to Americans because decisions to grant credit are most often made based on these credit scores. Thus, Americans with little or no credit history face significant obstacles in obtaining credit.
These bureaus generate reports on a consumer's credit history, which reveals how likely a consumer is to repay a debt using information about how that consumer has handled payments as far as bank loans, car loans, credit card bills, student loans, and mortgages. A consumer's credit history will also show payment histories, how much is owed, or whether that consumer has a court judgment or lien. These credit histories are what the bureaus use to determine a consumer's credit score.
According to the CFPB's announcement, consumers with limited credit histories can be placed in two groups – "credit invisible," which means the consumer has no credit report, or "unscored," which means the consumer has some credit history but not enough to generate a credit score, or else the information is "stale" and out of date.
The report found that 26 million adult Americans, which computes to an average of about one in every 10, do not have a credit history, thus making them "credit invisible," compared to about 189 adult Americans with credit records that can generate a score. About 19 million consumers (approximately 8 percent) have some credit history but not enough to generate a score; this number is almost evenly split between those who have insufficient credit history to produce a score (9.9 million) and those with "stale" or not recent enough credit (9.6 million).
Also according to the report, about 30 percent of consumers who live in low-income neighborhoods are credit invisible and an additional 15 percent in those neighborhoods have unscored credit records compared with only 4 and 5 percent, respectively, in upper-income neighborhoods. Also, the report found that black and Hispanic consumers were more likely to be credit invisible or have unscored credit histories than their white or Asian counterparts. The CFPB reported that 15 percent of black and Hispanic consumers are credit invisible while 9 percent of white consumers fit in that category; for unscored credit records, the numbers were 13 percent of black consumers and 12 percent of Hispanics compared to 7 percent of white consumers. The analysis by the CFPB suggests that "these differences across racial and ethnic groups materialize early in the adult lives of these consumers and persist thereafter."
Click here to see the entire report.