The plight of credit invisibles or the underbanked has been well documented. Depending on the definition, anywhere between 50 and 75 million Americans are financially underserved due to a lack of meaningful credit history. What has been less studied is that path these consumers take into and out of credit visibility.
Previously, the CFPB has found over 77% consumers emerge at a traditional credit bureaus by the age of 25. Often, their initial presence is due to a negative or derogatory financial event. Consumers in low-income neighborhoods are 3x more likely to acquire credit history from a non-loan.
Our analysis on credit mobility shows each month:
- Between 500 and 750 thousand bureau no-hits enter the credit system.
- Between 1 and 1.5 million thick files (enough information to generate a credit score) become thin files (too little information to generate a credit score), either voluntarily (i.e., aging out or credit freeze) or involuntarily (i.e., derogatory event).
- And over 200 thousand credit bureau no-hits transition to credit visibility through alternative data (i.e., public record or non-traditional credit).
Similar to the CFPB, our data also shows there is a strong correlation between age, ethnicity, income, and credit bureau presence. For example, we know that states that have the largest foreign born (and often undocumented) populations have large numbers of credit invisibles. The relationship between race and credit visibility is even stronger – with minorities (Blacks, Hispanics, and Native Americans) exhibiting the least access to credit.
Relationship between foreign born status and credit visibility (LexisNexis Risk Solutions Analysis)
Credit Bureau and LexisNexis RiskView™ scorable rates by race (LexisNexis Risk Solutions Analysis)
There is mounting evidence that the key to achieving the goal of financial inclusion is a modern and forward thinking data strategy. Non-traditional information can help score 15% more consumers than traditional bureau sources. Often, these individuals represent large swaths of the traditionally underserved populations described above. While there may be limited to no information on their credit bureau file, we often find insights like a stable address history, an occupational license, evidence of asset ownership, a business association, or post-seconday educational attendence demonstrate stability, ability, and a willingness to repay a finincial obligation. In fact, over 62% of U.S. consumers have more than one positive indicator on their LexisNexis® file—making them more likely to be credit eligible. Each year, we help lenders make credit decisions on over 1.5M credit bureau unscorables.
Learn more about our latest research on the role of alternative data in promoting financial inclusion in our latest eBook.