We have all been there, you are ready to make your first big purchase, you apply for your first loan only to get a denial and have someone tell you that you are credit invisible and do not even have a credit score. How are you supposed to get a credit score when no one will give you credit?
Being credit invisible in the US is a major issue for 1 in 10 adults. More than 26 million Americans are credit invisible and 19 million have no credit score at all. This is an issue in the minority and low-income communities and they have a difficult time obtaining credit due to a lack of a credit file and credit history. There are ways to create a credit file so that you can create a credit history and thus get a credit score so you are no longer credit invisible.
What Does Credit Invisible Mean?
Unfortunately, being credit invisible is exactly as it sounds. You have no credit history that is reporting to the three major credit bureaus so you will also not have a credit score. You are literally invisible when it comes to viewing your credit history.
A good credit score and credit history will help a lender to make a decision on whether or not you can obtain a loan. Your credit history shows lenders and creditors how you handle your finances and debt. That history provides them valuable information that will help them to make a decision when it comes to lending you money.
There are many factors that go into a person’s credit score. Without a credit history, it is impossible to give a consumer a credit score, thus making you credit invisible.
Why Does Being Credit Invisible Matter?
A solid credit history matters in many other areas other than making a purchase. Being credit invisible can affect several other areas in your life. Many companies pull your credit history in making other decisions like …
- Insurance
- Employment
- Housing
- Professional Licensing
You may be able to find a home with a landlord who does not do a credit check but it limits your choices. Highly rated insurance companies will pull credit but if they do not accept you then you will pay more with a lower-rated company. Future employers also look at your credit when making employment decisions, even if it is an entry-level position. If you need a professional license through your state or local government, you often have to provide a credit report before approval.
How Do I Get A Credit Score?
The obvious answer is you need to build a credit history. But with no score how do you obtain any credit? There are several ways to generate a credit score and you can do it fairly quickly if you have a plan and some resources to make it happen.
Become an authorized user.
One very fast way to build a credit file is to become an authorized user on a family member’s credit card accounts. If you have a family member who has good credit they can add you to their credit card accounts as an authorized user and their credit history will show up on your credit report.
There are some pitfalls to this method. If the family member has a late payment, you will too. Not all family members are keen on giving someone access to their accounts. But it can be a great tool to get a credit score in 30-45 days and the good news is, for the most part, it is free.
Get a secured credit card.
Getting a secured credit card is one of the first steps you can take to building a credit file. It is also the easiest. There is very little risk to the bank because a secured credit card is secured by a deposit you put with the bank. You will not have access to your deposit. If you default your deposit is used to cover the debt. Typically, you will get a credit limit in the amount of the deposit. In other words, if you place $300 with the credit card company you will get a $300 credit limit.
Credit builder loans.
You can also use this strategy with personal loans. These are called credit builder loans. You will put money in a savings account and once you pay back the loan over 6-24 months the savings account is released back to you in full as long as the debt is paid in full.
Using a secured credit card or loan is the most economical way to start building a credit file using actual credit products. Many will try for an unsecured credit card but you will often be charged annual fees and higher interest rates.
Retail store credit cards.
Some retail store credit cards are easier to qualify for over a bank credit card. Places like jewelry, clothing and furniture stores will offer easy credit terms to boost sales. The interest rates are high and the credit line is smaller. You want to make sure they are reporting your on-time payments to the credit bureaus. Not all do.
Report your rent to the credit bureaus.
This is not as common of a practice, but it can be done. Many people pay their rent on time even though they do not have a credit history. There are services out there that will report you on-time rent payments for you. The fee to do this ranges from $0 – $100 per year and there are conditions you will need to review.
Previously, FICO scores were not affected by rental history but things are changing.
New versions like FICO 9 do allow for rent payments to affect their score. You also can look into reporting your rent to VantageScore. However, VantageScore is used much less often by lenders when making a credit decision.
Overall it is somewhat of a tedious process that will bring mediocre results. Unless it is going to affect your FICO score, I would not be too quick to spend the money on this. If you can find a free service to do so then I would consider putting the time in to get it on your credit report.
Getting Your Credit Report
It is an important step to get your credit report and learn how the credit reporting system works. You will want to learn how to do this and start monitoring your credit on a regular basis. Understanding how the system works will help you to understand what factors are important to create a good credit score.
You can access your credit report one time per year at no charge with AnnualCreditReport.com. These credit reports do not include your credit score but they will show you any information that is being reported in your name. You want to make sure to get your report from all three bureaus, not just one. Different bureaus have different information reported to them.
Once you have obtained your free annual report you can make sure there are no errors in your reports. If there are then you can start to take the steps necessary to repair and rebuild your credit.
Build A Strong Credit File
Once you have learned how to access your credit history, dispute any errors, and start to build a solid credit history, you will no longer be credit invisible. This will open up more options for you when renting or purchasing a home, purchasing a car or even applying for a job.
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