Who Aren’t You Seeing? Credit Invisibles Are Worth a Look

The term “credit invisibles” can be applied to anyone who falls into the underbanked, thin-file, and no-file categories. These “invisible” consumers don’t have an established credit file with the three main nationwide consumer reporting agencies, preventing them from delivering the risk assessment lenders rely on to make credit decisions. According to recent research from ID Analytics, a third of all millennial consumers fall into this category.1

That doesn’t necessarily mean they aren’t creditworthy and certainly doesn’t mean they should be overlooked for credit products.

Consumers who fall through the cracks under traditional credit scoring models simply do not have sufficient information in their credit files to calculate a score. It’s difficult to build credit when you can’t gain access to it.

The Credit CARD Act of 2009 added another challenge for young millennials trying to build their credit histories. The CARD Act prohibited banks from providing those less than 21 years of age with a credit card, without a guardian co-signer, unless the applicant could provide proof of sufficient income to cover the credit obligation.2

Credit invisibles are in the market, looking for financial products, and banks have an opportunity to capitalize on this largely untapped demographic.

Numbers Don’t Lie. There is an Untapped Market Available for Credit

In 2015, the Office of Research of the Consumer Financial Protection Bureau (CFPB) conducted a study showing that 26 million consumers in the United States were credit invisible, representing about 11 percent of the adult population. The CFPB report identified an additional 19 million consumers (8.3 percent of the adult population) as unscorable, because they had thin-files without enough information to generate a traditional credit score.3

The same study shows that age is a significant factor in determining a consumer’s access to credit markets, with adults aged 19-25 having a high incidence of being ‘credit invisible’, meaning that their credit histories have potentially rendered them ‘unscorable’ in the eyes of the three nationwide credit reporting agencies.

Research by ID:A Labs reveals that these 80 million-plus millennials—the largest U.S. consumer group since baby boomers —are actively seeking credit, but are being denied at a much higher rate than other generations. And millennials have been shown to outperform other demographic groups within the same credit score range – baby boomers and Generation X are two to three times as likely as millennials to become delinquent in making a payment by 12 months or more.4

What’s the Risk? Scoring Credit Invisibles

Now that you understand who they are and the significant market opportunity they represent, how can your enterprise capitalize on this demographic more effectively without introducing excessive risk?

ID Analytics is dedicated to the science of distilling critical insights from relevant consumer interactions that traditional credit bureaus don’t see. We make the invisible, visible.

Here’s how:

  • While credit invisible consumers may lack history with the products considered by traditional credit scores – like credit cards and auto loans – they may still have a history of managing credit
  • By considering many modern credit responsibilities which traditional credit scores don’t – including wireless, subprime and online lending obligations – the vast majority of credit invisibles can be accurately evaluated
  • ID Analytics provides our customers with credit scores that include alternative data assets to actively engage America’s credit invisible population

Millennials want to establish credit and they likely represent a high lifetime value to lenders. There are ‘credit invisibles’ who represent low credit risk who may provide a profitable opportunity for enterprises to expand their business. Don’t miss out because you rely on traditional credit scores only.

1. ID:A Labs. Millennials: High Risk or Untapped Opportunity? (May 2015) http://hub.idanalytics.com/millennials

2. CREDIT CARD ACCOUNTABILITY RESPONSIBILITY AND DISCLOSURE ACT OF 2009 Title III, Section 301 retrieved from: https://www.congress.gov/bill/111th-congress/house-bill/627/text

3. CFPB Office of Research. CFPB DATA POINT: CREDIT INVISIBLES (May 2015) page 4 & 6 retrieved from: http://files.consumerfinance.gov/f/201505_cfpb_data-point-credit-invisibles.pdf

4. ID:A Labs. Millennials: High Risk or Untapped Opportunity? (May 2015) http://hub.idanalytics.com/millennials