At a Glance
Ready to take major financial steps like buying a car or home, but unsure if you have enough credit history? You’re not alone. Credit invisibility is incredibly common, and thankfully it’s also fixable.
In this article, you’ll learn:
What does credit invisible mean?
Credit invisibility simply means that you have no credit history with the three major credit bureaus: TransUnion, Equifax, and Experian. Therefore, you become “invisible” to lenders.
For some people, not having any debts might seem like a positive thing. But being credit invisible has potential downsides too, like making it harder to qualify for loans or lines of credit when you need them.
For example, you typically need a qualifying credit score to get a mortgage or car loan. With invisible credit, you may need to forgo major milestone purchases until you can make them in all cash.
If you think about it from the lender’s perspective, this makes a certain amount of sense. How do they know you’ll pay back the loan without evidence that you’ve successfully paid back loans before? By establishing a solid credit history, you demonstrate to lenders that you’ll make good on your debts.
How credit invisibility affects you?
Now that we’ve got the basics out of the way, let’s talk about how credit invisibility can affect you in practice. The following are a few scenarios where being credit invisible may hold you back from achieving important financial milestones.
1. Getting a mortgage
Today’s median home price is over $430,000, which puts buying in cash out of reach for most Americans. Around 80% of U.S. homes are purchased with mortgage loans. But what if you have invisible credit? Can you get a mortgage then? Unfortunately, it’s uncommon that you’ll be able to qualify for a mortgage without a credit history.
Credit scores are one of the biggest factors lenders use to evaluate mortgage applications. Without credit, you may still be able to get a mortgage, but doing so will usually require:
- Finding a lender that offers no-credit mortgages.
- Providing extensive documentation for a manual underwriting process.
- Making a larger-than-average down payment.
2. Renting a place
Many landlords require a credit check with rental applications. This is so they know you have a strong history of paying your bills on time. With invisible credit, a landlord may not approve your application, fearing you’ll be a risky tenant who won’t pay your rent. So keep in mind that credit invisibility may limit your housing options even beyond homebuying.
3. Buying a car
Another major purchase that usually requires some credit history? Buying a car, which most people do using an auto loan. Like mortgage lenders, auto lenders use your credit score to determine your loan worthiness.
Of course, you can buy a car outright if you’ve got the cash on hand. But if you don’t have enough money to buy an automobile out-of-pocket, you’ll need to qualify for a car loan.
4. Paying more for insurance
Depending on your state, you may pay more for auto, health, home, or life insurance with invisible credit. Insurance companies often use credit history to help set premium prices. They reason that people with low or no credit are more likely to make claims.
Note that in a few states, such as California, Hawaii, and Connecticut, this practice is banned.
5. Applying for a job
Finally, did you know that your next job application could come with a credit check? While this practice is relatively uncommon, employers in some states do run credit checks on applicants, especially if handling money is involved in the job duties. If you’re experiencing credit invisibility, that could give would-be employers pause.
How can you go from credit invisible to credit visible?
Now that we’ve got all the not-so-great news out of the way, there is a bright side: You can become credit visible with the right tools! Here are a few of your best options.
1. Secured credit cards
To get approved for a credit card, you typically need a credit check. But with a secured credit card, you make a security deposit instead. That gives you a line of credit equal to your deposit, allowing you to build some credit as you use and pay down the card.
2. Credit builder loans
Credit builder loans are meant to help you build credit, and they’re generally offered by credit unions and online lenders.
Here’s how it works: The lender issues you a small loan. You pay it back in monthly installments, typically over 6 to 24 months, all while building your credit.
There is a small catch, though. The funds are often held by the lender until the loan is fully paid. Plus, interest rates tend to be higher than what you’d find with other loans. But if you’re dealing with credit invisibility, this could be a way to help you build credit and get better loan options in the future.
Learn more: What is a Credit Builder Loan?
3. Retail store credit cards
Retail store credit cards are another way to build credit, and they tend to be easier to qualify for than other credit options. Additionally, they usually have lower credit limits, making it easier to stay on top of payments. You can find retail credit cards at gas stations, department stores, apparel chains, and more.
4. Become an authorized user
Another option is to become an authorized user on a friend or family member’s credit card. That means you get your card, and any payments made will appear on your credit history. So long as the card is properly managed and paid on time, this should improve your credit score.
However, keep in mind that it can be risky to share a credit card with another person. Make sure to establish ground rules when it comes to using the card and making payments so you’re on the same page as the original cardholder.
5. Get credit for eligible bills
With Experian Boost, you can use your payment history on bills like utilities, cell phones, and streaming services to build your credit. These bills usually don’t count toward your credit score, so getting “extra credit” for them is a nice feature. Keep in mind, though, that this will only boost your Experian score, and won’t help with TransUnion or Equifax scores.
Around 26 million people in the U.S. are credit invisible, and another 21 million have unscorable credit. That’s nearly 50 million people without credit scores!
Unscorable credit means you have some credit, just not enough to calculate a credit score. With invisible credit, you have no credit score at all. In either situation, you’ll find it difficult to get loans or other lines of credit.
No, you can’t wipe your credit history, since most credit activities stay on record for seven to 10 years. But you can make improvements to your credit score over time, and eventually, any negative score impacts should “fall off” your credit history.
Having bad credit is typically worse than having no credit at all. There are several ways to establish credit, plus a range of products geared toward those with no credit. In contrast, improving a poor credit score tends to be a more challenging process.
So if you’re without credit, take heart: There’s still plenty you can do to establish a credit history, so you can reach the financial milestones that matter most to you.