26 million consumers in the U.S. are considered “credit invisible,” according to the Consumer Financial Protection Bureau (CFPB) — and young consumers are more likely to be credit invisible, as they are just starting to build a credit history. This article explains what it means to be credit invisible, why it matters, and how to become “credit visible” and start building a good credit history.
Consumers who have no credit history at the three nationwide consumer reporting agencies (Equifax, Experian, and TransUnion) do not have a credit score and are therefore considered “credit invisible,” or invisible to the credit system. One reason that consumers are credit invisible is that they are new to borrowing and haven’t established a credit history. Another reason that consumers are invisible is that the types of payments they routinely make are not reported to the consumer reporting agencies. Being credit invisible does not necessarily mean that a consumer has a bad credit history. A consumer who is credit invisible and makes rent, insurance, utilities, and other payments on time to organizations that do not report to consumer reporting agencies is likely to have a good (although unreported) credit history.
While the concept of credit invisibility may seem theoretical and not relevant to your life as an undergraduate college student, it is important to understand what it is and why you do not want to be credit invisible. Being credit invisible will make it more difficult and more expensive to rent an apartment in your own name, obtain insurance, and get a loan. This article explains what a credit score is, why it matters if you don’t have one and are credit invisible, and how to become credit visible and start to build a good credit history.
A credit score is a three-digit number that creditors use to determine how likely you are to repay a loan. The most recognized credit score is the FICO® Score.
FICO Scores range from 300 to 850 and are calculated using various data in your credit report, including payment history (how you’ve paid your accounts over the length of your credit), amounts owed (how much debt you carry in total), length of credit history (how long your credit accounts have been established, including the age of your oldest account, the age of your newest account, and an average age of all your accounts), new credit (inquiries or requests for your credit report or score from the last 12 months), and credit mix (the types of credit you have).
A credit score sets the terms for some of the most important financial decisions in your life, such as buying a car or house, renting an apartment, getting a loan, and even being hired for a job.
Being credit invisible is exactly what it sounds like: you’re invisible to the credit system. When you’re credit invisible and apply for a credit card or mortgage loan, the card issuer or lender will be unable to determine your ability to repay the loan because you have no credit or payment history and therefore your application is likely to be declined or cost more (i.e., have a high interest rate and fees).
Being credit invisible can also affect your ability to rent an apartment, obtain insurance, and get a job, and can also mean that you’ll have to pay a higher security deposit to rent an apartment or obtain cable, Internet, cell phone, and similar services.
Read on to learn what you can do to become credit visible and start to build a good credit history.
One way to become credit visible is to get a credit card and use it responsibly. If you’re new to credit cards, certain types of cards may be a better fit than others. For example, a card that requires a good credit score is probably not the best card for you. Instead, a student credit card that does not require a credit history or credit score might be a good option.
You might also consider applying for a secured credit card instead of an unsecured credit card. A secured credit card generally does not require a credit history or credit score. It instead requires that you make a refundable cash deposit as collateral that is equal to the credit limit you are assigned. Many card issuers offer to upgrade a secured card to an unsecured card and return your security deposit after you prove your creditworthiness by making consistent, on-time payments. While an unsecured credit card does not require a cash deposit as collateral and may come with better perks and rewards, lower fees, and lower interest rates than a secured card, payments and other activity on both cards are reported to the consumer reporting agencies. Therefore, consistent, on-time payment as well as keeping the balance below your credit limit may help to build a good credit history.
Another way to become credit visible is to get a gas station, department store, or retail chain credit card. Because these cards tend to be easier to get and typically offer lower credit lines than bank-issued credit cards, they can be a good option for consumers looking to become credit visible.
Another way to become credit visible is to take out a credit-builder loan. A credit-builder loan is a small loan deposited into a locked savings account for a specified time. The borrower makes monthly payments on the loan, which are reported to the consumer reporting agencies and which, if consistent and on time, can have a positive impact on your credit. When the loan’s repayment term is up or the borrower has made the minimum number of payments required to “unlock” some (or all) of the loan proceeds have been made, the proceeds will be released.
According to a 2020 CFPB study (see page 3), the CFPB found that consumers without existing debt saw the biggest benefits from taking out a credit-builder loan. For these consumers, the likelihood of having a credit score increased by as much as 24%, and for those that already had a credit score, their credit scores improved by as much as 60 points more than those with existing debt.
If you don't qualify for a credit card, another way to become credit visible is to get added to a parent’s, grandparent’s, partner’s, spouse’s, or sibling’s credit card account as an authorized user. However, before being added to any account as an authorized user, you should make sure the primary accountholder pays his or her bills on time and has a good credit history. Once you’re added as an authorized user, the account will appear on your credit report (if the card issuer reports on authorized users), although the primary accountholder will be responsible for making payments. The advantages of being an authorized user are that you have access to credit that you might otherwise not qualify for, and your credit score can benefit from the primary accountholder’s responsible use of the card. However, the downside is that your credit score could be negatively impacted if the primary accountholder fails to make timely payments or otherwise defaults on the account.
For information about how teens can achieve a good credit score as a result of being an authorized user on their parent’s account, see this article from the Wall Street Journal: They Turned 18 and Immediately Had a Credit Score Over 700.
Another way to become credit visible is to report payments you make on qualifying bills using Experian Boost, ExtraCredit, or a similar service. To use Experian Boost, you must have at least one account on your credit report that has been active for at least six months and at least one account that has been reported to a consumer reporting agency within the last six months. If you meet these requirements and connect your bank, credit card, or service provider to Boost, Experian will look for on-time payments that you can add to your Experian credit file. Bills that qualify for Boost are mobile and landline phone, internet, cable and satellite, gas and electricity, and video streaming services. Online residential rent payments made to select property management companies or rent payment platforms are also eligible for Boost. It’s important to keep in mind that if a lender or credit card issuer does obtain credit report information from Experian, it will not see any of your Experian Boost accounts.
Another way to become credit visible is to get an UltraFICO® Score, which includes information about your bank account balances, cash flow, and bank transactions. While your UltraFICO Score can enhance your FICO Score based on indicators of sound financial behavior that are not visible on a traditional credit report, not every lender uses or accepts the score.
If you rent an apartment, there are services, such as RentTrack and PayYourRent, that you can use to report rent payments to Experian, Equifax, and TransUnion. This type of service can help you become credit visible and build a good credit history if you always pay your rent on time. Depending on the service, you may be charged a one-time verification fee plus a monthly fee, or your landlord may sign up for a larger paid subscription.
On-time payment history is an important factor in becoming credit visible and building a good credit history. You should always aim to pay your bills on or before the due date. Setting up automatic payments is a good way to make sure you always pay your bills on time. If you do not set up automatic payments and realize you’ve missed a payment, you should contact your bank or bill provider to fix it as soon as possible. Payments that are more than 30 days late are generally reported to the consumer reporting agencies.
An important step in becoming credit visible and building a good credit history is to use credit wisely and responsibly. If you’re just getting started with your first credit card, you should review and be sure you understand the terms and conditions, only spend what you can afford to pay every month, pay your bill on time every month, try to pay the balance in full every month and never less than the minimum amount due, set a budget and stick to it, and keep your credit utilization low (i.e., stay below your credit limit). The goal of a credit card isn’t to buy things you don’t have the money for, but instead to use it to begin building good credit habits and a good credit history.
For more information on how to manage your money and build credit wisely during and after college, visit CollegeData’s financial literacy page.