In the U.S today, 1 in 5 adults lack the credit history to establish a credit score. From this statistic there are 67 million Americans who have “thin credit” (less than 4 accounts) and 25 million who are considered credit invisible. A lack of credit may not seem to be a big deal to some people, but it can have serious financial consequences.
58% of people admit to running out of money at the end of the month. This can lead to people having to cut back on expenses, pull money out of savings accounts, or turn to pawn shops to get quick cash. Only 27% of people report using credit as a way to catch up at the end of the month, and this is in part due to the difficulty it can be to get a credit account building.
Many people understand the financial burdens that illness or injury can lead to, and this is only intensified in the credit invisible population of the country. In fact, 60% of Americans report that they could not pull an unexpected $1K from their savings, and this number is small compared to the cost of some medical expenses. So what is the solution to help the credit invisible?
Using alternative data can aid in providing the necessary information to prove the financial stability of people who don’t have enough credit to calculate a score. Using data such as bank transactions, rent payments, or utility accounts can take the place of traditional credit scores and assist in people taking out loans to help them pay necessary expenses.
With the uncertainty of life, it is important that consumers know they will be able to afford necessary expenses when they need them, even if they have low credit history. Using alternative data is a way to ensure this and benefits the millions of Americans that are struggling with credit invisibility.