Becoming Credit Visible

Abstract

In a previous Data Point, we estimated that 11 percent of adults in the United States, or about 26 million people, are “credit invisible,” meaning that they do not have a credit record at one of the three nationwide credit reporting companies (Brevoort, Grimm, and Kambara 2015). Without a credit record, lenders will have a harder time assessing the creditworthiness of applicants. As a result, the credit invisible may have a harder time accessing credit.

In this Data Point, we build on our earlier work by exploring the means by which consumers were able to transition out of credit invisibility. Using a sample of de-identified credit records for over 1 million adults who made this transition, we document the types of information that led to the creation of their credit records and investigate how often these consumers may have relied on others (friends, family, etc.), to serve as cosigners for loans or as account holders who can extend authorized user status, to help them make this transition and also how often visibility is achieved through a collection item or public record rather than as the result of a loan. We also explore how these transitions differed across consumers of different ages and across neighborhood income levels and how the transitions have changed in recent years.

Key findings from this report include:

• Most consumers who transition out of credit invisibility do so at young ages. Of the transitions out of credit invisibility that we observe in our sample, almost 80 percent occur before age 25.

• Across all age groups and income levels, credit cards trigger the creation of consumer credit records more frequently than any other product. Student loans are the next most frequent, though this almost entirely reflects the patterns of young consumers.

• About 15 percent of consumers opened their earliest reported credit account with a co-borrower. The credit records of an additional 9.6 percent of consumers were created when the consumer became an authorized user on someone else’s credit account.

• The frequency with which credit cards trigger the creation of a credit record has been growing rapidly in recent years, except among consumers younger than 25.

Note: This is another in an occasional series of publications from the Bureau of Consumer Financial Protection’s Office of Research. These publications are intended to further the Bureau’s objective of providing an evidence-based perspective on consumer financial markets, consumer behavior, and regulations to inform the public discourse.