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What Does It Mean to Be Credit Invisible?

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Articles about credit often lament the number of people drowning in debt. But there’s a lesser-known flip side to that very widespread problem: 26 million Americans are “credit invisible,” meaning they have no credit history at all.

Having no credit score can hurt you in the long run. Here’s a closer look at the consequences of having no credit.

What is credit invisibility?

Being credit invisible means you do not have any credit history with one of the three nationwide credit reporting agencies: Equifax, Experian and TransUnion.

About one in 10 adults in the U.S. are considered credit invisible, and an additional 19 million consumers have “unscorable” credit files, meaning their credit files don’t contain enough credit history or enough recent information to calculate a credit score.

If you’re part of that group, in some respects, that’s a good sign because it means you’re not in debt. But in other ways, being credit invisible can cost you money or hold you back from other financial opportunities.

Your credit report reflects your ability to pay bills on time and manage debt. Without this information, lenders, creditors and others may have a hard time gauging your creditworthiness, sense of responsibility, trustworthiness and likelihood to manage your exposure to risk.

Let’s consider the following ways credit is used beyond credit cards.

Getting a mortgage

Having the resources to pay cash for a house might be a dream for many people, but for most of us, it’s not usually an option. As a result, nearly 80% of homes purchased in the U.S. involve some sort of financing.

Your credit history is one of the major factors lenders use to assess whether you’re a good candidate for a mortgage. It’s a quick way to get insight into your ability to repay debt and handle credit responsibly. While it’s possible to find lenders willing to work with buyers with little or no credit history, the process typically requires more documentation and time.

Renting a house or apartment

Homeowners aren’t the only ones who typically need credit to secure housing. Nearly half of landlords say the results of a credit check are among the top three factors they consider when deciding whether to accept a lease application, according to a report from TransUnion.

Without credit, your options for places to live may be limited. If you do find a landlord willing to rent to you without a credit check, you might need to have a cosigner, pay more upfront or have a month-to-month lease.

Buying a car

Like mortgage lenders, auto lenders use your credit report to gauge your ability to repay debt, so financing a vehicle loan with no credit history can be challenging.

If you’re credit invisible, you’ll need to prove your creditworthiness to the lender in other ways. That might include getting a cosigner, making a larger down payment or paying a higher interest rate.

Getting insurance

In some states, your credit history can be used to set premiums for home, auto, health and life insurance. Insurance companies don’t look at your regular insurance score; they look at a scoring system specially designed to predict how likely you are to have an insurance loss.

Insurance scores are used by 95% of personal lines insurers. That includes insurance products for homes, condos, rental property, watercraft, jewelry and automobiles. The explanation? “It is logical that people who don’t manage their finances responsibly are also not likely to maintain their homes or autos responsibly — and, thus, are more likely to file claims,” according to FICO.

Without a credit history, you may pay a higher rate for insurance coverage, even if you’ve never filed a claim or been involved in an accident.

Getting a job

When you apply for a job, you expect the employer to review your job application or resume and check references. In some states, employers might also check your credit, especially if the position involves dealing with money. With no credit history, an employer may decide not to hire you.

How can the credit invisible come into the light?

Building a credit history is not complicated, as long as you understand the fundamentals of getting credit and managing it responsibly. Here are a few ideas to get you started:

  • Apply for a secured card. Secured cards require a security deposit and give you a line of credit equal to your deposit.
  • Apply for a credit-builder loan. Many credit unions and online lenders offer credit-builder loans. The lender deposits your “loan” into a savings account on your behalf and lets you repay the amount in monthly installments.
  • Apply for a retail store card. Retail store cards have a reputation for approving applicants with no credit. You’re more likely to be approved for a card that is only accepted at one store or a group of stores than a card that can be used anywhere.

No matter how you start building credit, make sure you take steps to manage it responsibly. That includes paying your bills on time, staying well below your credit limit, only opening new accounts when necessary and checking your credit report regularly.

Bottom line

If you are credit invisible, you shouldn’t be afraid to shed your invisibility cloak and be seen by the credit reporting agencies.

You don’t have to go into debt to get there. Apply for a small loan or line of credit, use it for small monthly expenses and pay your bill in full each month. That small step will help you build a credit score and make your presence known before you need to make a major financial move like buying a home or car, applying for insurance or getting a new job.


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