In this changing economy, one might argue that Americans are obsessed with improving or perfecting their credit score, because ultimately, good credit is the gatekeeper to the American dream. Without it, you can’t possibly hope to get the loan you need to buy your dream home, jumpstart your innovative business idea, or send your children to the college of their choice.
True, there is a litany of resources available for those looking to improve their credit score. But what about for those who have no credit?
Credit Invisibility
There are over 26 million Americans that have absolutely no credit history. This population is commonly referred to as “Credit Invisibles”. They have never taken out a loan, opened a credit card, or entered into any other kind of borrower agreement.
It might be easy to assume that this lack of credit is directly correlated to financial irresponsibility, but in reality it could be just the opposite: credit invisibles are often perfectly successful and excellent savers, but may lack trust in financial institutions. Other times, credit invisibles have low-income and run into trouble getting approved for the things necessary to build credit. Others were taught that borrowing money is bad for your financial health.
Unfortunately, when the time comes for a person with no credit visibility to apply for a loan to buy that house or start that company, the bank may reject them. Without a credit history, lenders have no way to assess or predict whether or not the applicant will reliably submit their monthly payments. In the lender’s eyes, having no credit is just as bad as having bad credit. So what are credit invisibles to do?
The Credit Access and Inclusion Act
In an attempt to help invisibles create credit, some credit reporting executives are lobbying for the Senate and the House to pass accompanying versions of the Credit Access and Inclusion Act. This bill proposes to remove certain state-based privacy clauses that come from utility and rental payments. In layman’s terms, many states require that you give consent for information regarding your rent and utility payments to be reported. This bill would remove the requirement that you give consent, allowing credit invisibles to build credit based on their cost-of-living payments alone.
How Does the Credit Access and Inclusion Act Impact Credit Invisibles?
The problem with this bill is twofold: the major credit reporting agencies would benefit tremendously from the passage of this bill by bypassing current state privacy laws to accumulate additional data about our credit.
Secondly, those credit invisibles that do have low income would perhaps be much more negatively impacted by the Credit Access and Inclusion Act than benefitted. A specific example: many low-income households have a hard time paying their electric or gas bill when running their HVAC system in the more extreme summer and winter months, but use the transition seasons to catch up on payments. Under the new bill, these months of falling behind would ultimately damage their already close-to-nonexistent credit.
While the Credit Access and Inclusion Act may seem like a valiant effort to help invisibles build credit, it’s potential repercussions outweigh the benefits. This bill could significantly harm low-income families with no credit. Ultimately, credit invisibles will have to find a new, less damaging road towards building a credit history.
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