What is Credit Invisibility?
You’ve probably heard of bad credit or good credit, credit scores and credit reports. But have you ever heard of the term “credit invisible”? Probably not! Credit invisibility is when a person has no credit history whatsoever. This means that they have nothing in their history to say that they have good credit or bad credit. There’s just no credit at all. In 2015, the Consumer Finance Protection Bureau found that 26 million Americans are actually credit invisible.
Credit invisibility is when a person has no credit history whatsoever.
Why Does It Matter?
Your credit history and credit score determine what you will or won’t be approved for. This can affect your ability to get a home loan, a car loan, a student loan, a credit card, etc. I can also influence whether or not someone can get a job or an apartment, since many employers and landlords now check people’s credit before accepting them. All of these limitations can have a huge negative impact on people’s lives. Becoming credit visible is an important way to open up a world of possibilities.
How to Become Credit Visible
Getting approved for credit is a lot like getting a job. You need experience in order to get hired, but you can’t get experience without hired chosen first! Creditors want you to have a history of credit, but you can’t build a history of credit without having been approved for credit first. However, there are ways to prove yourself as a responsible customer even if you don’t have the credit history that creditors prefer.
- Get a Secured Credit Card
When I first graduated from college, I had never had a credit card, but I knew that I wanted to get one. My parents recommended that I get a secured credit card through their credit union. The card had a very low limit of $500 so that I wouldn’t be able to overspend too much. I had to put $500 (let’s be honest, my parents gave me the money) in a CD as collateral. This meant that if I maxed out my credit card but wasn’t able to pay it back, the bank had the CD to pay themselves with.
A secured credit card is helpful for you and your creditor. You’re able to build your credit while also not putting yourself at risk over going way into debt. Your creditor isn’t putting itself at too much risk because your limit is low and there is usually collateral for them to pull from.
Talk to your bank and see if they offer a secured credit card option!
- Get Added As An Authorized User
A very easy way to build or improve your credit is to be added as an authorized user on someone’s credit card. This is when someone already has a credit card and they add you as an authorized user on it. In this scenario, you don’t even have to have access to the card itself, just the history of that account. That card starts to be reported to credit bureaus under your name, so that you have the benefit of the (hopefully) positive credit history.
(Tip: If you do get access to the card to spend on it, make sure you only spend what you are able to pay back. You don’t want to hurt your relationship with the account holder if you are unable to pay off your portion of the credit card balance.)
Of course, you should make sure that you trust the person who is adding you as an authorized user. If you get added and then the account holder misses payments, your credit history will be harmed. You’ll want to make sure that the main account holder will make their payments on time and keep their debt to credit ratio low. Otherwise, their negative credit history will become your negative credit history.
- Have Someone Co-Sign a Loan
If you need to get a loan but you have no credit, you can get someone to co-sign it for you. This tells the creditor that even if you default on a loan, there is someone else who will be responsible for paying it. And really, creditors really just want to make sure that someone will pay them back.
Getting a co-signer can also give you better rates on a loan. When the lender sees that there is someone with good credit also responsible for the loan, they are more willing to give lower interest rates. For example, my little sister is exploring refinancing her student loans. The person she spoke to at the bank suggested that my parents co-sign the consolidation loan so that she could get a lower interest rate. That’s not the route she will probably take, but she was surprised that it was an option for her.
(Note: This is a huge commitment for someone to make for you. You’ll want to come to an agreement up front with the co-signer. It could even be a written agreement that you come back to later if anything goes wrong. You don’t want to put your relationship with the co-signer, or their financial stability, at risk, so make sure that you are able to pay back the loan on your own.)
- Get Credit for the Rent You Pay
Unfortunately, if you’re being a responsible adult and paying your rent every month, the credit bureaus don’t always know it. However, you can sign up for rent-reporting services, such as Rental Kharma and RentTrack, that take bills you’re already paying and report them to the credit bureaus. This can show lenders and creditors that you have a history of responsibly paying your bills. It’s a great way to show that what you’re already doing matters and have it show up on your credit report.
Of course, there is a fee that is associated with these services. And unfortunately, not all credit bureaus take this into account. But if you want to start building credit, and are unable to do the above options, this is one route to take.
If you take one or more of these steps, you’ll be on your way to credit visibility. Over time, you’ll even have good credit!
Have you ever been credit invisible? How did that affect you? Share in the comments!