Are you one of the 45 million consumers in the United States whose credit is “invisible” or unscoreable, according to the Consumer Financial Protection Bureau (CFPB)?
If you are credit invisible, it means that you have no credit record. When lenders or potential landlords go to the credit bureaus to pull your credit history, they simply won’t find anything.
Or, you may be unscoreable, meaning that the bureaus will find some credit data, but not enough to create a reliable credit score. You can also be unscoreable if the data on your credit record is “stale” — that is, not recent enough.
The Big Problem With Being ‘Credit Invisible’
Credit invisibility is not the same thing as poor credit — which results from having a history of late payments, maxed-out cards or accounts in collections — but it has many of the same negative effects.
Both of these lead to the same problem: Lenders will not extend credit to you. With no credit, it’s just as difficult to access low-interest credit options, because lenders can’t make an educated guess about how likely you are to pay back your debt. Rather than chance it, they’re more likely to refuse you credit. (Not fair, but that’s the way it often goes.)
A November 2017 report examining “credit deserts” found that credit invisible consumers “tend to utilize alternative financial service providers or ASFPs (such as payday lenders, pawn shops, check cashing and rent to own) at higher than average rates.”
Without access to much-needed credit-building opportunities, these kinds of providers may seem like your only option. But the truth is, they are likely to leave you in even worse financial shape. The better option is to focus on becoming credit visible. Fortunately, it’s easier to remedy credit invisibility than it is to rebuild poor credit.
How to Become ‘Credit Visible’
There are some smart and relatively easy steps that you can take to become credit visible and build up a strong credit score over time.
1. Become an Authorized User on an Account
When you become an authorized user on a family member or friend’s credit card, you will typically get a card tied to their account with your name on it.
Keep in mind, you don’t actually have to use the card to get the benefits of being an authorized user — and it might create problems if you’re not careful. Always discuss any purchases you plan to make with the account owner. If you think you’ll be tempted to make unnecessary purchases, just let your friend or family member hold onto that card for you. Then, remain an authorized user until you’re approved for an account of your own.
2. Find a Co-signer
Another way to “piggyback” your way to strong credit is to get a co-signer. Just keep in mind: Asking someone to be your co-signer is a big deal, because they’ll be legally responsible for your payments too. That could spell big trouble if you don’t always make payments as agreed and on time.
3. Get a Secured Credit Card or Credit Builder Loan
One way to become credit visible on your own is to open a secured credit card. You’ll need to put down a deposit, typically a few hundred dollars, as collateral toward the card’s limit. As you make regular payments and maintain healthy credit usage, you’ll see your score start to grow.
A second option is a credit builder loan. The bank will deposit a small sum of money into a secured account for you. You’ll make regular payments until you’ve paid the “loan” back. Then the money is yours again, often plus any interest you’ve earned. This shows lenders that you can maintain a regular schedule of payments.
4. Report Your Responsible Rent Payments
Another way to become credit visible is to get credit for paying your rent. You might think you’re already getting credit for this, but most landlords aren’t reporting that data. In fact, only 0.3% of consumers have a rental tradeline reported in their credit file, according to FICO.
But it’s easy to start getting data about your responsible rent payments reported to all three credit bureaus. RentTrack, for example, allows you to report rent without getting your landlord to sign up or verify each payment. Be sure to pick a service that reports to all three credit bureaus, since you want to make sure those on-time payments show up, no matter which report lenders pull.
Research shows that rent reporting has a huge impact. A 2017 report by the New York City Comptroller’s Office showed that after adding rent as a credit file account, known as a tradeline, almost 30% of tenants with no credit file gained a score. Out of those who gained a score for the first time, the average score amounted to 700 points — not too shabby.
Even if you have been labeled as “credit invisible,” it doesn’t mean you’re a lost cause — it just means you need to show the credit bureaus what you’re capable of. Make the most out of these tips and strategies, and before you know it, you will be well on your way to a stronger financial future!
Megan Eales Monroe is the digital marketing manager at RentTrack, the first credit reporting agency to report rent payment data to all three bureaus. She loves inclusive credit, marketing, travel and her mystery breed rescue dog, Lewis.