Thank you for joining us on this call. Today we are releasing a report finding that about one in 10 adults in this country, or about 26 million consumers, are “credit invisible.” Consumers that are credit invisible do not have credit history with any of the three nationwide credit reporting companies. An additional 19 million Americans have credit histories containing insufficient or stale information that were “unscored” by a commercially-available credit scoring model that is consistent with most credit scores used today.
Consumers’ credit histories reflect how they have repaid their debts to those lenders that report to the credit reporting companies. Details about how much consumers have paid and owe on their credit cards, mortgages, student loans, car loans, and more may all be included. Credit histories may also contain information about tax liens, bankruptcy filings, and court judgments. Credit history is compiled into credit reports and used to produce credit scores, which lenders then use to help assess how likely consumers are to repay their debts. Without credit reporting and credit scoring, it would be harder for financial service providers to assess and manage credit risk, and the supply of credit would be more expensive, more erratic, and more constrained.
These reports and scores play an incredibly important role in the lives of American consumers. Although the vast majority of Americans have a credit file at the three nationwide credit reporting companies, about 26 million Americans do not. Credit reports and credit scores can determine the terms of people’s mortgages, whether they qualify for auto loans, or if they are eligible for different credit cards. As long as they follow the requirements in the law, potential employers may review a consumer’s credit report as a factor in making a hiring decision. Landlords may also consider this information before deciding whether to approve a potential renter or how much money to require for a security deposit.
So when consumers do not have a credit report, or have too little information to have a credit score, the impact on their lives can be profound. It can preclude them from accessing credit and taking advantage of certain opportunities. And given that we found that consumers in low-income neighborhoods are more likely to be credit invisible or unscored, this may be limiting opportunities for some of the most economically vulnerable consumers.
Our report found that of the consumers that live in low-income neighborhoods, almost 30 percent are credit invisible and an additional 15 percent have records that are unscored. These percentages are notably lower in higher-income neighborhoods, where only about 4 percent of residents are credit invisible.
Our report also found that Black and Hispanic consumers are more likely than White or Asian consumers to have limited credit records. We conservatively estimate that about 15 percent of Black and Hispanic consumers are credit invisibles compared to 9 percent of White consumers. On top of that, we estimate that about 13 percent of Black consumers and 12 percent of Hispanic consumers are thought to be among the unscored – compared to only 7 percent of White consumers. What may be most concerning is that our analysis suggests that these differences across racial and ethnic groups materialize early in the adult lives of these consumers and persist thereafter. One explanation could be that these consumers face reduced access to credit that continues to hamper their opportunities for growth throughout their lives.
Part of our mission is to empower economically vulnerable consumers. It is humbling and important work. And in order to achieve that goal, we need to first understand the landscape that shapes how these consumers operate. Today’s report helps shed some light on the challenges they face.
At the Consumer Bureau, we are dedicated to fostering a responsible marketplace that helps consumers get ahead rather than harming them and setting them back. We will be able to take the information from today’s report and apply it in the future as we continue to work on behalf of the most vulnerable consumers among us. Thank you.
The Consumer Financial Protection Bureau (CFPB) is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit www.consumerfinance.gov.