Unless a person pays for everything in cash, borrowing money is often a necessity in today’s society. Many people, however, lack the credit scores that make it possible to borrow at an affordable rate. Consider a few key questions that may help you understand how credit reporting works and how you can build credit from the ground up.
What Is Credit and How Is It Recorded?
Credit is essentially a record of how a person handles debts and other aspects of his or her finances. If you were to take out a student loan or open a credit card, for example, your consistency in making monthly payments says a lot about the way you manage your money. Payments not associated with debt, such as rent, can also affect your credit. Lenders, as well as other types of business people, like to review your financial history to determine whether or not they can count on you to hold up your end of financial dealings.
Information about consumers’ credit histories is often sent to credit reporting bureaus such as TransUnion, Equifax, and Experian. These agencies save and analyze this data to give accounts of people’s financial backgrounds in the future. Though the credit reports that these bureaus develop are multifaceted, a key component is known as a credit score. An individual’s credit is given a number ranging from 300 to 850 that is meant to help lenders evaluate a potential borrower’s financial trustworthiness at a single glance.
What Causes a Person To Be Credit Invisible?
Not every consumer has a credit score. In fact, a significant percentage of the adult population in the U.S. is considered to be credit invisible. To be credit invisible means that credit reporting bureaus do not have enough data about a consumer to form a credit report. Thus, those who are credit invisible have no credit score on file. Unfortunately, credit invisibility is more common for some demographics than others. Young adults, people living in rural areas, and racial minorities are among the consumers most likely to be credit invisible.
Why Is Credit Invisibility Problematic?
Because lenders rely on credit to judge the risk associated with lending to a certain individual, a credit invisible person may have a difficult time borrowing money from a bank. When funds are needed immediately, those without credit may be drawn to payday loan providers and similar lenders who charge exorbitant interest rates.
Notably, financial institutions aren’t the only ones who like to peek at consumers’ credit reports. Your credit may also be reviewed by insurance companies, utility companies, phone companies, landlords, and employers. In many cases, credit invisible people must pay large deposits to enter into dealings with these entities.
What Can You Do To Become Credit Visible?
Building credit from scratch is more difficult than many people might think. How can you prove your financial trustworthiness if no one is willing to give you the chance to do so? Fortunately, there are a couple of ways to establish credit when you have none. First, you could apply for a secured credit card. These cards work differently than typical credit cards because you can only borrow amounts that are less than the security deposit you provide. This minimizes the credit card company’s risk while demonstrating your ability to make consistent payments. You may also be able to reach a similar agreement with some lenders wherein you pay small installments over time before receiving a loan. Credit invisible people can often qualify for credit cards at grocery stores and department stores, as well.
Second, many people take advantage of a concept known as credit piggybacking to boost their credit. This method involves utilizing another person’s strong credit to bolster your own. For example, you could ask a parent to cosign a loan with you. This reduces lenders’ risk because cosigners are also responsible for repaying these debts.
Similarly, you could jump onto a creditworthy person’s existing credit card account. This option is very efficient because the credit report of a newly authorized user of a longstanding tradeline may automatically gain the credit the original user has built over a number of years.
What If You Don’t Know Someone With Strong Credit?
Piggybacking is an effective way to become credit visible, but it isn’t always easy to find a creditworthy person who is willing to cosign something for you or add you as an authorized user on their credit card account. Companies like Coast Tradelines specialize in connecting consumers of different credit profiles. We help match people with strong credit with those who are looking to become authorized users. Both parties benefit because the former receives financial compensation and the latter boosts his or her credit score.Our team at Coast Tradelines strives to make credit available to people of all backgrounds. You can count on us to provide convenient, affordable tradeline services so you can get the credit score you need as quickly as possible. Contact us today to learn more.