45M consumers have little or no credit profile, study says - how to improve your credit score

Credit invisible population has several options to begin building a credit profile

Millions of consumers remain credit invisible in the U.S., according to a new TransUnion study.  (iStock)

More than 45 million consumers are considered unserved or underserved in the U.S., meaning they have little to no credit history, according to a new TransUnion study

Consumers have no credit reports when they do not use lines of credit for their purchases. This is common among younger generations who have yet to begin using credit, or among those who save up cash to pay for purchases rather than relying on credit. These consumers are often called "credit invisible."

This can become a problem when consumers want to make larger purchases such as a home or a car but are unable to do so due to their lack of credit history. Having no credit score at all can sometimes be worse than having poor credit.

"Our study clearly points to hundreds of millions of consumers around the globe being credit unserved or underserved," Charlie Wise, TransUnion senior vice president and global head of research and consulting, said. "These credit disadvantaged consumers are often unable to access financial products and services because they have no, or little, credit history. This study served to better understand how many people are truly under- or unserved from a credit perspective, while also determining paths for them to gain more credit opportunities."

If you are looking to build your credit profile, you could consider taking out a personal loan to help you cover a large expense or home improvement project. Visit Credible to compare personal loan lenders and find your personalized interest rate.


Alternative data could create credit history for many consumers

The study, called "Empowering Credit Inclusion: A Deeper Perspective on Credit Underserved and Unserved Consumers," defines unserved consumers as anyone who has never opened a traditional credit product such as a personal loan, credit card or auto loan. Underserved is defined as someone who has been active in the credit market for at least two years with minimal credit participation, such as having a single type of credit product and no more than two open accounts of that credit type.

For these consumers, alternative data could help them establish a credit profile, according to TransUnion. Alternative data looks at factors such as rent payments and other monthly bills to determine a consumer’s credit score. A consumer that makes on-time monthly payments, even if they are not credit payments, shows less lending risk than someone who does not meet their monthly bills. 

"This reality underscores the importance of incorporating alternative data into the financial ecosystem so that fewer consumers find themselves as credit invisible," Wise said. "Once these consumers can be evaluated by financial institutions, lenders can better determine where there might be new opportunities for growth and how they can expand credit inclusion."

Consumers can share their alternative data to credit bureaus by voluntarily reporting to programs such as Experian Boost. This program connects to a person's bank accounts to share financial data to credit bureaus in order to help boost their credit scores. Another way consumers can build credit is by taking out a credit card or other loan product. Visit Credible to compare multiple credit card options at once and choose the best option for you.


Steps to improve your credit score

In the U.S., about 14% of the adult population is underserved and 3% are dealing with credit invisibility, the study said. Because lenders may be hesitant to lend to someone without a credit score, consumers are faced with figuring out how to build their credit history. Here are a few ways to start:

Open a line of credit

The most common first product for consumers entering the credit market is a credit card, according to the TransUnion study. However, there are also other options available, such as a small personal loan or an auto loan. 

But consumers should keep in mind that with little to no credit history, they could see higher interest rates. Keeping the loan amount small and paying it off on time will help keep costs low while building credit. To compare different financial products, you can visit Credible to see your options and get pre-approved in minutes.


Start sharing alternative data

Consumers can choose to share more information with the credit bureaus to help improve their credit score. For example, renters can ask their landlords to report their payments to the credit bureaus. This would allow lenders to see a history of on-time payments. 

Consumers can also use a service such as Experian Boost to share their bank account with credit bureaus and report financial information such as savings account balance averages and paid bills. Experian Boost said that consumers with thin credit profiles see the most impact from this product and may even see an instant increase in their credit score or move into a higher credit tier.

Monitor your credit

It is a good idea to check your credit records and see where it stands so you know what improvements must be made. Monitoring your credit will also allow you to watch as your score improves and get personalized tips on how to continue improving it. If you're interested in credit monitoring, you can visit Credible to sign up for free today.

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