Credit history is an integral part of your financial health. To qualify for the best terms on loan or credit card products or avoid hefty security deposits, you’ll need good or excellent credit. And in some instances, a solid credit history is required to land your dream job or secure affordable auto insurance premiums.
But what happens if you don’t have a credit history? What are the potential consequences, and how can you start building credit responsibly? You’ll know the answers to these questions in this detailed guide.
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What is a Credit Invisible?
Individuals who are credit invisible lack credit history. Consequently, there’s not enough information for the three major credit bureaus – Experian, TransUnion and Equifax – to generate a credit report on their behalf.
Credit Invisibles in the U.S.
Roughly 11 percent of the adult population, or 26 million people, are credit invisible, according to the Consumer Financial Protection Bureau (CFPB).
What are the Drawbacks of Being a Credit Invisible?
No Credit Score
For starters, the inability to get a credit report also means you won’t have a credit score. And even if you were to open a credit account today, you’ll likely have to wait at least six months (or 180 days) for enough information to appear in your credit file to generate a credit report.
Difficulty Applying for Loans and Credit
Being credit invisible is also problematic if you want to apply for a loan or credit card. The FICO score is used by 90 percent of creditors and lenders to make lending decisions. So, it can be challenging to get approved if you don’t have a credit score to reference. Lenders or creditors will be forced to do a manual underwrite or physical review of your financial documents to issue a lending decision.
Higher Security Deposits
If you’re credit invisible and get approved for services like cable, internet, cellular phone, or a rental unit, you’ll likely be required to make a higher security deposit. Doing so gives the service provider or landlord collateral to fall back on in case you default on the agreement.
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Harder to Get a Certain Job
It’s not uncommon for employers in the financial industry to check the credit reports of top applicants. Unfortunately, if you’re credit invisible, you may find it challenging to land lucrative job opportunities in this sector.
Problems in Availing Services Like Insurance
Like employers, auto insurance providers in some states are allowed to review credit history when setting premiums. Therefore, not having a credit score may not result in a denial of coverage, but you could pay more for coverage.
Ways for Credit Invisibles to Start Building Credit
Sign Up for Experian Go
Experian GoTM was recently rolled out to help consumers with no credit history generate an Experian credit report. It’s free and offers insights on how to start building credit to generate a FICO score – one option that can make you immediately scorable is Experian Boost. More on that shortly. Download the Experian mobile app and sign up for a free membership to get started.
Become an Authorized User
Ask a relative or friend to become an authorized user on their credit card. The account should have a flawless payment history and minimum credit utilization ratio – preferably 30 percent or lower. If they agree, the account will be added to your credit report and help you establish a positive payment history. In addition, you won’t assume responsibility for charges made on the card and can remove yourself as an authorized user at any time.
Apply for a Secured Credit Card
Some credit card companies, banks and credit unions offer secured credit cards to consumers who are looking to establish or improve their credit history. These debt products require a cash deposit to serve as collateral, and it’s generally for the amount of your credit limit. Assuming the credit card issuer reports account activity to the credit bureaus, you will establish positive credit history by using the card responsibly, making timely monthly payments and keeping the balance low.
Get a Credit Builder Loan
Credit builder loans are another viable option to start building credit. Upon approval, the lender will place the loan proceeds in an account instead of disbursing them to you. You’ll make monthly payments (including principal and interest) over a set period that is reported to the credit bureaus. When the load is paid off, the funds are released to you, and you’re free to use them however you see fit.
Look for a Co-signer for a Loan
You can also try applying for an unsecured loan product with a co-signer that has excellent credit. However, that individual must also agree to assume responsibility for the balance in the event you fall behind on payments.
Enroll in Experian Boost™
Experian Boost is another free service that helps you improve your credit history. When you sign up, you can select eligible, on-time utility, phone and streaming service bills you already pay and add them to your Experian credit report to possibly increase your credit score right away. Experian Boost is also accessible on the mobile app, and it’s both fast and easy to get started.