26 Million Americans Lack Credit History, Says New Federal Report

26 Million Americans Lack Credit History, Says New Federal Report
May 06, 2015

A federal report found that one in 10 adults, or 26 million people, do not have any credit history with a nationwide consumer reporting agency.

The report published by the Consumer Financial Protection Bureau (CFPB) found black and Hispanic consumers, and those living in low-income neighborhoods are more likely to have no credit history or not enough current credit history to produce a score.

This trend is especially problematic as more decisions are based on credit scores. While once typically used to determine loan eligibility, credit histories are now being used, among other things, as factor for employment,

"A limited credit history can create real barriers for consumers looking to access the credit that is often so essential to meaningful opportunity—to get an education, start a business, or buy a house," said CFPB Director Richard Cordray.

The three nationwide consumer reporting agencies, also called credit bureaus, generate credit reports that track a consumer's credit history. Credit reports and the three-digit credit scores that are based on those reports play an increasingly important role in the lives of American consumers. Most decisions to grant credit and set interest rates for loans are made based on information contained in credit reports. As a result, those consumers who have a limited or nonexistent credit history face greater hurdles in getting credit.

In broad terms, consumers with limited credit histories can be placed into two groups. The first group is consumers without a credit report, or the "credit invisibles." About 26 million consumers are considered credit invisible.

The second group, the "unscored," includes consumers who do not have enough credit history to generate a credit score or who have credit reports that contain "stale" or not recently reported information. The exact definition of what constitutes insufficient or stale information differs across credit scoring models, as each model uses its own proprietary definition. About 19 million consumers are in this group, making up about 8 percent of the adult population.

Where consumers live also seems to correlate with credit invisibility. About 30 percent of consumers who live in low-income neighborhoods are credit invisible and an addition 15 percent have records that are unscored. Comparatively, in upper-income neighborhoods only 4 percent of the population is credit invisible.

The report found that black and Hispanic consumers are more likely to have limited credit records. About 15 percent of black and Hispanic consumers are credit invisible compared to 9 percent of white consumers. An additional 13 percent of black consumers and 12 percent of Hispanic consumers have unscorable records, compared to 7 percent of white consumers. The CFPB analysis suggests that these differences across racial and ethnic groups materialize early in the adult lives of these consumers and persist thereafter.

This analysis was conducted using information from the CFPB's Consumer Credit Panel, which is a random sample of de-identified credit records purchased from one of the nationwide credit reporting agencies and is representative of the population with credit records. By comparing information in the credit panel from December 2010 with 2010 Census data, the Bureau was able to estimate the number of consumers who were credit invisible or had unscored credit records.

The full report can be found here.