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 Mellody: There is a pretty simple explanation here. Your credit score is a three-digit number based on your financial history — whether you make your mortgage payment, rent payment or credit card payment on time, or how much of your available credit you use. This information is provided to the three major credit bureaus by banks and lenders. But, if you don’t have any credit cards or loans, theirs is nothing in your credit file that the credit bureaus can use to evaluate your history, so a score cannot be created. Ironically, if you don’t have a credit score, it is difficult to get a loan or credit cards. Because of this, many credit invisible individuals get stuck outside of the economic mainstream.

Tom: Is there any help on the horizon?

 Mellody: Some policymakers have suggested that alternative credit scoring systems, such as a customer’s track record of paying their rent or utilities or cellphone bill, could provide pathways for individuals in these situations to get credit and build a credit profile. However, other experts are wary of these options, as they could backfire for low-income consumers. As an example, some low-income consumers tend to pay utility bills late during high-cost periods — such as during a winter cold spell — but catch up when the weather warms up. Reporting these interim delinquencies could give consumers a low score. So, there is no silver bullet for this problem at the moment.

 Tom: Barring these changes, how can people emerge from credit invisibility?  

Mellody: While it may seem counterintuitive, the best way to build a credit history is with a credit card. Secured credit cards are great starter cards because almost anyone can qualify for them, since they are backed by cash collateral. By making a deposit equal to the credit limit, the creditor has no default risk. Be sure to have the card company report your history to the credit bureaus so your positive payment record can help build your credit file. Once you have a credit card, it is critical to use responsibly. Repay your balance in full every month to avoid interest charges. If you make sure to stay current on your payments, you will be able to establish a solid credit history. But it does not happen overnight. Generally, it takes 6 months of history to generate a FICO score, which indicates your creditworthiness.

Tom: Always great to have you join us, Mellody. Have a great week!  

Mellody: You too, Tom!

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Money Mondays: Credit Invisibility  was originally published on

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