Millions of Americans are 'credit invisible'

Flickr user B Rosen

Almost one-fifth of American adults have little to no credit history, according to a new government report. 

About 26 million U.S. consumers are credit invisible, representing about 11% of the adult population, according to the Consumer Financial Protection Bureau. An additional 19 million consumers, or 8.3%, had credit records viewed by credit bureaus as unscorable.

Together, that means a total of about 45 million Americans basically have no credit score.

About 15% of blacks and Hispanics are credit invisible, versus 9% of white and Asians, the study found. An additional 13% of blacks and 12% of Hispanics also accounted for those with unscored credit records compared to 7% of whites. 

About 30% of those in low-income neighborhoods fall into the credit invisible category and a further 15% with unscored records, according to the study. 

"These differences are observed across all age groups, suggesting that these differences materialize early in the adult lives of these consumers and persist thereafter," the study concluded. 

According to My FICO, credit scores are calculated using the below criteria:

• 35% from payment history
• 30% from amounts owed
• 15% from length of credit history
• 10% from new credit established
• 10% from types of credit in use

Also, over 80% of 18 and 19-year-olds fall into one of these two categories, CFPB found. This is because teens do not usually have enough of a credit history to be accurately scored.

Adults without a credit score are unable to obtain credit cards or loans for big-ticket items like vehicles or houses. Little or no credit can also make it difficult to rent a home or even find steady employment. This led to New York City recently passing a law that largely bans credit checks as a prerequisite for being hired.

Prepaid debit cards, which according to a recent Pew Charitable Trust study are increasingly being used, do not report to credit bureaus and thus don't help establish credit history. 

This leads to many individuals finding themselves either credit invisible or with unscorable credit histories.