The Consumer Financial Protection Bureau's Office of Research recently
research report regarding credit invisibles--adults that have no credit history that can
be scored by any of the three major credit reporting agencies. The report
also discusses people who do have a credit history, but cannot be scored
due to insufficient or stale credit histories.
The study found that 26 million Americans (11% of adults) are credit invisible.
Another 19.4 million Americans (8.3% of adults) have credit records that
cannot be scored. Somewhat unsurprisingly, the study found a strong relationship
between income and having a credit record. 30% of consumers in low-income
neighborhoods are credit invisible. Antoher 16% have unscorable credit records.
There is also a racial divide. 15% of Blacks and Hispanics are credit invisible,
while only 9% of Whites and Asians are credit invisible. A similar disparity
exists for people with unscored credit records.
One problem that this presents is how people who are credit invisible or
who are unscored obtain goods and services. Most payday and auto title
loans don't require a credit check. As a result, those who are credit
invisible or unscored are funneled into those types of loans. Similarly,
auto loans can be obtained, but from companies that track vehicles via
GPS or use ignition cutoff devices. The loans tend to be geared towards
large interest payments to the auto dealership. If the borrower defaults,
the car is quickly repossessed and resold.
The final conclusion drawn from the study was that understanding the demographic
makeup of credit invisibles and the unscored helps inform the process
of finding a solution to the problem.