CFPB Corrects ‘Invisible’ Count as Millions Struggle to Shake Credit Limbo

The Consumer Financial Protection Bureau (CFPB) reports that the ranks of the “credit invisibles” in the U.S. have thinned.

But there are still 25 million unscored individuals.

As reported by the agency, 2.7% of the adult population are considered credit invisible, reflecting an update to data and the methodologies employed by the CFPB. A decade ago, the CFPB said that 25 million individuals were credit invisible, lacking any sort of credit profile.

But since then, according to the update, “we discovered after issuing the 2015 report that records with only deferred student loans, collections, or closed accounts were not contained in the Consumer Credit Panel, and therefore they were inadvertently excluded from that analysis.”

The data also indicate that 9.8% of adults are unscored, at least as measured in 2020. Census Bureau statistics, available here, indicate an adult population of about 258.3 million, so the read across is that about 25.3 million individuals were unscored.

Unscored designations mean that these consumers do indeed have credit files, but the activity on those files is sporadic or stale, which means that credit scores can’t be calculated or refreshed.

Moving From Unscored to Scorable

So: The invisibles are a smaller population than had originally been estimated, but the unscored population is a significant one and far outstrips the size of the invisibles pool. Unscored status means that applying for credit can and will be less than fruitful — without enough data on hand to determine creditworthiness, lenders defer to rejecting these applicants, keeping them credit marginalized.

PYMNTS Intelligence has reported that credit marginalized consumers make up about 24% of the more than 2,600 consumers surveyed in a collaboration with Sezzle, and the majority of them live paycheck to paycheck.

The data show, too, that marginalized households are 47% more likely than the average consumer grapple with unexpected expense and are more than twice as likely to turn to high-interest credit products to provide some relief. There’s a bit of vicious cycle at work, too, given the fact that 81% of credit-marginalized consumers who faced unexpected expenses found themselves at the mercy of further credit issues.

As PYMNTS reported in April, U.S. Sen. Tim Scott, R-S.C., and chair of the Senate Banking Committee, introduced legislation targeting expand credit access for Americans with thin or no credit files. The Credit Access and Inclusion Act would amend the Fair Credit Reporting Act and let the bureaus collect payments data for rent, phone, electricity and other recurring obligations.

There’s also been momentum in using alternative data to supplement and underpin what’s reported to the credit bureaus and to lenders.

In one example, reported late last month, FICO said it will launch its first credit scores that incorporate buy now, pay later (BNPL) data in the fall. FICO Score 10 BNPL and FICO Score 10 T BNPL will initially be offered alongside existing versions of the FICO Score, with no additional fee from FICO, so lenders can evaluate them while continuing to use the existing FICO models.

Studies conducted by FICO  compared the FICO scores of over 500,000 consumers who opened at least one new Affirm BNPL loan against a benchmark population of consumers without an Affirm BNPL loan. It found that the impacts on FICO Score predictiveness ranged “from modest improvement to no adverse impact, across a range of different use cases.”