Credit Invisibles

Abstract

In broad terms, consumers with limited credit histories can be placed into two groups. The first group is comprised of consumers without NCRA credit records. We refer to this group as “credit invisibles.” The second group includes consumers who, while they have NCRA credit records, have records that are considered “unscorable,” meaning they contain insufficient credit histories to generate a credit score.

The challenges that credit invisibles and consumers with unscored records face in accessing credit markets has generated considerable attention from researchers and industry participants. Several studies have explored the potential of various types of “alternative data” to supplement the information contained in the NCRA credit records and allow credit scores to be generated for these consumers. Stakeholders have debated the implications of doing so for those with limited credit history as well as those with scorable files whose credit profiles might change with the addition of such data. Several industry participants have also developed scoring products that are aimed specifically at these populations.

Despite all of this attention, very little is known about the number or characteristics of credit invisibles or consumers with unscored credit records. This Data Point documents the results of a research project undertaken by Staff in the Office of Research of the Consumer Financial Protection Bureau (CFPB) to better understand how many consumers are either credit invisible or have unscored credit records and what the demographic characteristics of such consumers are. This analysis was conducted using the CFPB’s Consumer Credit Panel (CCP), a 1-in-48 longitudinal sample of de-identified credit records purchased from one of the NCRAs and representative of the population of consumers with credit records. This dataset contains information on almost 5 million consumer credit records.

Key findings of this report include:

• As of 2010, 26 million consumers in the United States were credit invisible, representing about 11 percent of the adult population. An additional 19 million consumers, or 8.3 percent of the adult population, had credit records that were treated as unscorable by a commercially-available credit scoring model. These records were about evenly split between those that were unscored because of an insufficient credit history (9.9 million) and because of a lack of recent history (9.6 million).

• There is a strong relationship between income and having a scored credit record. Almost 30 percent of consumers in low-income neighborhoods are credit invisible and an additional 15 percent have unscored records. These percentages are notably lower in higher-income neighborhoods. For example, in upper-income neighborhoods, only 4 percent of adults are credit invisible and another 5 percent have unscored credit records.

• Blacks and Hispanics are more likely than Whites or Asians to be credit invisible or to have unscored credit records. About 15 percent of Blacks and Hispanics are credit invisible (compared to 9 percent of Whites and Asians) and an additional 13 percent of Blacks and 12 percent of Hispanics have unscored records (compared to 7 percent of Whites). These differences are observed across all age groups, suggesting that these differences materialize early in the adult lives of these consumers and persist thereafter.

Note: This is another in an occasional series of publications from the Bureau of Consumer Financial Protection’s Office of Research. These publications are intended to further the Bureau’s objective of providing an evidence-based perspective on consumer financial markets, consumer behavior, and regulations to inform the public discourse.