“Credit Invisibles” Explained
Who Are Credit Invisibles?
According to the Consumer Financial Protection Bureau (CFPB), about one out of five adults in the
United States are “credit invisible,” meaning they are unscoreable by traditional credit scoring
methods and traditional credit data.
The lack of a conventional credit record prevents these consumers from obtaining the financial
products and services they need to be successful since they are seen by lenders as too high of a
A report by the Policy and Economic Research Council (PERC) on credit invisibility in Silicon Valley
showed that unscoreability is a big problem in low-income areas. However, low-income does not
necessarily equate to financially irresponsible.
We can see evidence of this in a study by PERC and the Brookings Institution Urban Markets
Initiative, which shows that when alternative data (such as rent and utility payment history) are used
in credit ratings, those lacking a traditional credit history have similar risk profiles as those in the
credit mainstream. This suggests that most credit invisible consumers do not represent a high risk to
On the other hand, some of these consumers do have relatively good incomes but are credit
invisible for various reasons, such as a preference to use alternative financial technology services
instead of traditional financial institutions, a decision to be voluntarily credit-inactive and debt-free, or
a cash-based lifestyle due to lack of access to banking services (as in some immigrant populations).
Credit Scores and Income
Low-income consumers are about 8 times more likely than high-income consumers to lack credit
records that are scoreable by widely used credit scoring models.
In consumers that do have credit scores, individuals who reside in low-income census tracts have
lower credit scores than other income groups, according to the CFPB.
They also found that people in lower-income neighborhoods are less than half as likely as those in
upper-income neighborhoods to gain a credit record by relying on the good credit of others (such as
through joint accounts or authorized user accounts) and are 240 percent more likely to become
credit visible due to negative records.
Lower-income consumers are less likely to have one or more AU tradelines, and those that do
acquire shorter credit histories from the accounts than those in higher-income areas.
Even after controlling for credit scores, consumers in low-income areas face higher denial rates than
How the Credit System Adversely Affects Some Races and Ethnicities
In a report to Congress on credit scoring and its effects on the availability and affordability of credit,
the Federal Reserve Board raised concerns that factors in credit scoring models could adversely
affect consumers based on their race or ethnicity.
The study determined that on average, Black and Hispanic consumers had lower credit scores than
non-Hispanic White and Asian consumers, and a gap remained even when controlling for
differences in personal demographic characteristics, location, and income.
In addition, when looking at the same credit score for all groups, outcomes such as loan
performance, credit availability, and credit affordability differed between these groups.
For example, it seems that Black individuals pay higher interest rates on auto and installment loans
than do non-Hispanic White consumers with the same credit score. In addition, Black and Hispanic
consumers experience higher denial rates than other groups with the same score.
When it comes to credit piggybacking, another analysis by the Federal Reserve Board on how
authorized user tradelines are treated by credit scoring models revealed that AU tradelines were
most common among non-Hispanic White consumers and least common among Black consumers.