One in 10 U.S. adults is invisible to much of the American economy because they have no credit report or score, a new report by the Consumer Financial Protection Bureau has found. Those 26 million adults — disproportionately Black or Hispanic — have virtually no chance to borrow money or use credit cards. And another 19 million adults have credit reports so "thin" that they are unscoreable by traditional methods, and also left behind by the credit system.
Together, that means 45 million Americans — one in five adults – have no traditional 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 CFPB found that 188.6 million American adults have credit records that can be scored using traditional models, or 80% of the population.
Most of the Americans left behind by traditional scoring methods are young. Over 10 million of the estimated 26 million credit invisibles are younger than 25, the CFPB found.
The findings are consistent with other recent studies about the "credit invisibles." FICO, which created the most widely-used formula for credit scoring, told the Wall Street Journal last month that 25 million Americans have no credit events on file and an additional 28 million have thin files. VantageScore, which offers an alternative to FICO scores, said last year that 30-35 million Americans don't have a traditional credit score.
Among those with thin files, the CFPB said the group was evenly split between those who have an insufficient credit history and those who lack a recent credit history.
Consumers can have thin files for a variety of reasons. Recent immigrants or young adults might simply not have had the time to build up credit events on their report. Consumers with bankruptcies in their past may have stopped using credit and switched to cash transactions.
Consumers in low-income neighborhoods are more likely to be invisible or unscored, the CFPB said. In poor neighborhoods, nearly one-third of residents are invisible, the CFPB said, compared to 4% in a high-income neighborhood.
Black and Hispanic consumers are considerably more likely to be credit invisible or have unscored credit records than White or Asian consumers, the CFPB said. About 15% of Black and Hispanic consumers are credit invisibles compared to 9% of White consumers. An additional 13% of Black consumers and 12% of Hispanic consumers have unscoreable records, compared to 7% of White consumers.
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.
If you're not sure where you stand with your credit — or whether you have a credit history at all — a good way to check is to request your credit report. You can get a free credit report every year from each of the three major credit reporting agencies, and there are many sources that will give you your credit score for free, including Credit.com.
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