Being “credit invisible” might sound like a superpower, however, in the world of finances it’s anything but.
Your credit report and credit score — two factors that are generally considered important for getting a mortgage, credit card, and more — are based in large part on your history of managing credit. If you are considered “credit invisible,” you don’t have a history for the credit system to pull from.
So then what happens?
The good news is, it’s not the end of the world. We’ve compiled some helpful information and tips for establishing your credit and potentially accessing the financial products you are looking for.
What Does it Mean to Be Credit Invisible?
There are three primary credit reporting agencies (CRAs) that compile credit information about you in order to calculate your credit score(s) and help creditors determine how responsible you are in managing credit: Experian, Equifax, and TransUnion.
These CRAs primarily rely on lenders and creditors (also known as data furnishers) to relay information that can be included in your credit report — like payment history, account balance, credit limit, and more. If you don’t currently have accounts or loans with any lenders or creditors, CRAs may not have the information to establish a credit file for you.
Credit Invisible vs. Credit Unscorable
If this sounds like your situation, you aren’t alone. According to credit scoring company FICO, millions of American adults are credit invisible and millions more are considered “credit unscorable.” This means they have some credit information, but not enough recent information to generate a credit score.
- No Credit History
Number of people: About 25 million
- New to Credit (Credit history is less than 6 months old)
Number of people: About 3 million
- Credit Impaired (The median time since the last credit update is 34 months.)
Number of people: About 18 million
- Credit Retired (The median time since the last credit update is 4.5 years.)
Number of people: About 7 million
A Few Ways to Establish Credit
Whether you’re credit invisible or credit unscorable, there are ways to establish or reestablish credit in order to access different financial products in the future.
Here are just a few.
Get a secured credit card.
Secured credit cards were generally made for consumers with no credit, little credit, or poor credit. That’s because they usually require a security deposit as a means of protecting the creditor should default occur. The amount of the deposit is typically equal to the credit limit of the card but should be returned if the account is closed or upgraded to a regular credit card.
By making on-time payments and responsibly managing a secured credit card, you can begin to establish a positive credit file.
Research other types of credit cards.
Traditionally, secured credit cards might have been the primary option for those without a credit history — but now things may be a little different.
Case in point: the Petal card. If you have no credit history or limited credit history, this unique credit card allows you to link your bank account to receive a “cash score” based on factors like the bills you pay and money you earn. There’s no security deposit required, and you can even earn cash back on purchases — a percentage that can increase after a certain amount of on-time monthly payments. Payment history is reported to all three primary CRAs to help build your credit as well.
The bottom line? Financial products are constantly changing. Do your research and you may be able to find a great product geared toward the credit invisible or credit unscorable.
Become an authorized user.
One potentially simple way to establish credit is by becoming an authorized user on someone else’s credit card account. The size of the impact may not be substantial (after all, they will still be on the hook for making payments), but it can be one step towards improving your credit.
There are a some things you may want to consider, however.
- Make sure the primary user makes payments on time and keeps their credit utilization low.
While someone with positive credit habits may give your credit score a boost, someone with not-so-great credit habits can potentially do just the opposite.
- Confirm the credit card issuer does in fact report authorized users to CRAs.
If a creditor does not report this information to the CRAs, then being an authorized user won’t necessarily provide the benefit you’re looking for.
Join a lending circle.
Now here’s a unique option you may not have heard about.
Lending circles are usually established between friends and family, with the help of a company offering the service. The group takes turns making payments to each other, with a different person getting the full amount each month. These monthly payments are reported to CRAs to help participants establish credit, while funding various things with little to no interest. Some companies even offer financial education to ensure positive credit habits are established going forward.
Here are a few different companies with different modes and means of operating.
(NOTE: These examples are for informational purposes only and are not endorsed by Upturn.)
Find a credit builder loan.
Getting a traditional loan usually means you’re handed the funds up front and required to pay them back at a certain interest rate over a predetermined amount of time. A credit builder loan, on the other hand, is essentially the opposite — you agree to pay a certain amount monthly (principal + interest) and then at the end of the term, you are given the full, agreed upon amount. Depending on the lender, you may receive some of the interest back, along with the principal loan amount.
These monthly payments will usually be reported to CRAs just like any other loan, helping to build credit over time. But beware, this means late payments may also be reported, which could have the opposite effect.
Building Positive Credit Habits is Key
Whatever step you take to begin building or rebuilding your credit, one thing is key: now is the time to start establishing positive credit habits. Here are a few tips:
- Make on-time payments every time. (Read about the importance of on-time payments here.)
- Keep your credit utilization below 30%. (Get the facts about credit utilization here.)
- Monitor your credit reports regularly. (Find out how you can access your credit reports for free here.)
- Dispute any errors you find on your credit report(s) as soon as possible. (Upturn can help you monitor your TransUnion credit report and dispute errors for FREE. Learn more and sign up here.)