Credit Invisible Consumers Can Be Creditworthy

Roughly 45 million consumers may be denied access to credit simply because they do not have credit records that can be scored, according to the Consumer Financial Protection Bureau.¹ However, not all credit invisibles are high-risk consumers who shouldn’t be given credit.

The term, credit invisibles, can apply to anyone who falls into one of two categories:

1. Thin credit file
2. No credit file

The consumers in these groups lack an established credit file with the three main nationwide consumer reporting agencies. And without that file, the traditional credit scores and attributes which underpin most credit decisions can’t be generated. That makes it difficult for these consumers to get loans and can also impede their ability to get housing and employment. Meanwhile, your organization could be missing out on many potentially qualified customers.

Credit invisibility is not synonymous with creditworthiness. Someone who is credit invisible could actually have a good credit history, if she or he has exhibited a credit worthy pattern of life events and/or interactions with rent, insurance or lender who don’t report to a credit bureau. The problem is that a true repayment history may not be included in their traditional credit scores, making their good credit history invisible.

Many so-called credit invisibles don’t deserve to be overlooked for credit products. They’ve fallen through the cracks under traditional credit scoring models only because they don’t have sufficient information in their credit files to calculate a score. But how can they build a credit history when they can’t gain access to credit?

It is estimated that one third of all millennial consumers are credit invisible. That’s in large part due to the Credit CARD Act of 2009, which made it more difficult for millennials to build their credit histories. It prohibited banks from providing consumers under the age of 21 a credit card without a guardian co-signer unless the applicant could provide proof of sufficient income to cover the credit obligation.²

Research reveals that these 80 million-plus millennials—the largest U.S. consumer group since baby boomers—are actively seeking credit but are being denied at a much higher rate than other generations even though they could likely represent a high lifetime value for your organization.

In fact, millennials have been shown to outperform other demographic groups within the same credit score range. Baby boomers and generation X are two to three times as likely as millennials to become delinquent in making a payment by 12 months or more.³

In 2015, the Consumer Financial Protection Bureau (CFPB) found 1 in 10 adults in the U.S., or about 26 million people, are credit invisible. An additional 19 million consumers have “unscorable” credit files, which means either their file is thin and has an insufficient credit history (9.9 million), or they have stale files and lack any recent credit history (9.6 million).⁴

Together, the unscorable and credit invisible consumers equal 45 million and make up almost 20 percent of the entire U.S. adult population, all of them likely to be denied access to credit simply because they don’t have credit records that can be scored.⁵

Credit invisibles are in the market, looking for financial products, and your organization has an opportunity to capitalize on this largely untapped demographic.

But first they’ll need to find a way to make the invisibles, visible.

You need to take into account alternative data assets that can help provide an accurate evaluation and assess whether a consumer is creditworthy. The alternative data may consist of:

• Loans from short-term lender
• Loans from online lenders
• Asset ownership data
• Public records data
• Professional licenses

While credit invisibles may lack history with traditional credit products like credit cards and auto loans, they may have other credit responsibilities and life experiences that can prove they are qualified borrowers.

By strategically pursuing underserved groups such as millennials and helping credit-invisible consumers increase their visibility, you can take advantage of a profitable opportunity to expand your business. Most importantly, you can begin lending to these customers without taking on unnecessary risk, while also providing much-needed credit to underserved populations.

You no longer have to rely solely on traditional credit scores to find creditworthy prospects for your products, opening the door to boundless new markets.

Contact Sales to learn more about solutions for evaluating credit invisibles.

1. Consumer Financial Protection Bureau, Expanding access to credit
2. Congress.gov, Credit CARD Act of 2009
3. LexisNexis Risk Solutions internal data sources
4. Consumer Financial Protection Bureau, CFPB Report Finds 26 Million Consumers Are Credit Invisible
5. Consumer Financial Protection Bureau, Who are the credit invisibles?