How To Help Credit Invisibles

According to a 2016 report by the CFPB, approximately 26 million American consumers are “Credit Invisible”.

This means that one in ten adults don’t have a registered credit profile with the credit bureaus. The growing population of credit invisible consumers is due to generational changes in consumer spending and credit utilization.

Unfortunately, this creates serious headaches for your clients that are ready to buy a home but don’t have sufficient credit scores in need to qualify. In addition, it can make it more complicated for the consumer when you try to explain that credit is a “pay to play” system that requires using credit in order to have a credit score.

We’ve put together our best advice on how to help people who are credit invisible prepare to credit qualify.

Step One: Sign Up for Credit Monitoring.

Most people make radical assumptions in regards to building or establishing credit. This often leads to disappointment and confusion when it comes time to credit qualify for a loan. We recommend that everyone sign up for a credit monitoring program that provides full credit reports. This will help cut down on confusion about how credit is being used and improvements in credit scores.

Step Two: Open a Secured Credit Card.

Opening a secured credit card can dramatically improve a client’s credit score. However, most clients will benefit from having at least two REVOLVING credit lines (secured or unsecured). Credit scoring models like FICO and VantageScore care little about how big the credit lines are. Instead, they focus on the overall utilization of those credit cards. Opening two secured credit cards, never spending more than 30% of the available limit, and paying them off to 1-5% of the available limit each month with maximize your client’s ability to improve their credit scores.

Step Three: Expand the Types of Used Credit.

Once your client has enrolled in credit monitoring and opened two secured credit cards, then they should focus on expanding the types of used credit on their credit report. Opening an installment loan and paying it on time will establish payment history while checking the box on establishing different types of credit. The dollar amount and term of the installment loan is of little importance. Unlike revolving credit lines, paying off an installment loan early won’t negatively impact your credit score, so encourage your clients to be aggressive about establishing payment history but also paying off installment debt.

We hope this information helps your credit invisible clients reach their goal of home ownership. If you have questions or want to learn more about ways to help your clients with credit challenges, please use this link to schedule a call with our team.

Have a great day!