How credit invisibility affects you
If you’re credit invisible, you can still get by with cash and debit cards. But it’s harder to get a credit card, car loan, mortgage or even an apartment lease. When the lender checks your credit report and doesn’t find anything, they may turn you down, limit what you qualify for or increase your interest rate, premium or deposit. In some cases, a credit score may even be required for certain jobs.
While almost half of those surveyed (47%) by U.S. News & World Report said that credit invisibility hasn’t affected their life, they’ve also admitted that it’s harder for them to achieve certain financial milestones. For example, 22% said they’ve had trouble buying or leasing a vehicle, 16% have had trouble securing an apartment and 21% have had to pay a higher deposit for utilities.
While many credit invisible or unscoreable Americans want to build their credit history, they may not know where to start, or they may have fallen victim to misinformation. Nearly half of those surveyed (48%) believe they can’t get a secured credit card if they don’t have a credit history.
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There are several approaches you can take to start building your credit history. For example, you can apply for a secured credit card, which does not require you to have a credit history. Instead, you ‘secure’ your card by making a deposit, which is typically a few hundred dollars. This serves as collateral for the card issuer if you can’t make your monthly payments and acts as your credit limit.
If you use the card regularly and pay your bill on time each month, you can start building a positive credit history (since your credit card activity is reported to the credit bureaus, just like a traditional credit card). Eventually, you could transition to a traditional credit card that doesn’t require a deposit.
Prepay a loan
Another option is a credit-builder loan, which is like a ‘reverse’ loan. Instead of receiving a lump sum of money that you pay off in installments, the lender puts the money into a savings account and you pay off the loan before you get access to the money.
The upside is it allows you to build a credit history by demonstrating your reliability when making payments. The downside is that you’ll still have to pay interest on your loan (and possibly an upfront, processing fee).
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Learn moreReport timely bill payments
Credit-builder loans are typically available from credit unions and community banks. But you don’t necessarily need a credit card or loan to build your credit history. Typically, utility payments aren’t included as part of your credit history, but services like Experian Boost allow you to include utility, rent, cell phone, internet, streaming and insurance payments in your credit report. It’s free to sign up and can boost your FICO score by an average of 13 points, according to Experian. But keep in mind that not all lenders use Experian credit files.
If you make on-time rent payments each month, you can also request that your landlord report your payment history to credit agencies or use a third-party service to do it on your behalf. Some companies that help orchestrate this include RentTrack, PayYourRent and RentReporters, which could help strengthen your credit history.
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