A recently released government study by the
Consumer Financial Protection Bureau on "Credit Invisibles" has some interesting facts on
people with and without credit histories.
- Approximately 188.6 million Americans have credit records
at one of the NCRAs that can be scored by the commercially-available
model. This represents over 80 percent of the adult population.
- An additional 19.4 million Americans, representing 8.3
percent of the adult population, have credit records that cannot be
scored. These are almost evenly split between consumers with credit
records that are insufficient unscored (9.9 million) and those that are
stale unscored (9.6 million).
- The remaining 11 percent of adults, or about 26 million
Americans, are credit invisible.
- Over 80 percent of 18 or 19 year olds are credit
invisible or have unscored records. This percentage drops substantially
for older consumers, falling below 40 percent in total for the 20 to 24
year old age group. After age 60, the number of consumers that are
credit invisible or that have an unscored record increases with age.
- Over 10 million of the estimated 26 million credit
invisibles are younger than 25. Consumers in this age group also account
for a disproportionate share of insufficient-unscored credit records. In
contrast, most consumers with stale-unscored records are middle aged.
Consumers aged between 25 and 50 account for over half of stale-unscored
credit records.
Percentage Share of Invisibles and Unscored by Age
Number of Invisibles and Unscored by Age
Credit Expansion
The study did not indicate how many of the 45 million (invisibles plus
unscorables) are illegal aliens. But the name of the game as always is credit
expansion.
Investor's Business Daily discusses situation in Obama Pushing Banks Into Riskiest Borrower Pool Yet: 45
Million 'Unscorables'.
Housing: As part of its amnesty program, the Obama regime
seeks to expand credit to a whopping 45 million potential deadbeats — including
illegal immigrants — whose credit files are too spotty even to score for
risk.
In a just-released federal report, the administration portrays these
"credit invisibles" as victims of a traditional credit-scoring
system. And since most are minorities, it claims that excluding them from the
financial mainstream is discriminatory.
"Our report found that black and Hispanic consumers are more likely than
white or Asian consumers to have limited credit records," CFPB Director
Richard Cordray said in a press call.
To remedy the "credit inequality," credit reporting agencies
are being pressed to generate scores for this high-risk group based on
payments of cellphone and utility bills, as well as immigrant remittances.
But analysts say most of these "unscorables" are not creditworthy,
and according to preliminary estimates, their median credit score falls well
below the subprime cutoff (535 vs. 620). Public records show many are subject
to third-party debt collection and tax liens.
Lenders rely on the three-digit credit score as an indicator of how likely it
is a borrower will repay a debt. Stale files or thin credit history does not
allow FICO and other risk modelers to accurately predict future credit
performance — that is, the likelihood, relative to other borrowers, that a
consumer will become 90 or more days past due on a credit obligation in the
following two years.
Using "alternative" inputs in the models, such as utility payments
and remittances, could water down the models and make credit scores less
reliable, leading banks to make even riskier lending decisions.
Undoing the "Card Act"
Part of the alleged credit injustice dates to 2010, when many of the
provisions of the Credit Card Accountability, Responsibility, and Disclosure
Act (CARD
Act) took effect.
CNBC discusses the Card Act in 45 Million Americans
Live Without a Credit Score
After the CARD Act passed in 2009, consumers under age 21
had to prove they had a job or a co-signer to get a credit card. The goal was
to keep younger consumers from taking on credit card debt they could not
repay, he said, "but if you are going to restrict people from getting
credit, you are also going to restrict their ability to build a credit
report."
Get a Job
Is that a real hardship to require a job or other source of documented income
before giving someone a credit card or mortgage?
Instead, CNBC offers this advice on rebuilding or establishing credit.
How to Rebuild Your Credit
Consumers have a number of possible ways to build or rebuild a credit
history. One thing they can do is obtain a secured credit card. A credit
score is not necessary, and using the card to draw on money you deposit with
a bank will help you build a credit history.
If you go this route, make sure to choose a card that will report your
payment history to all three credit rating agencies, Ulzheimer cautioned. Not
all do, and "without reporting to all three, it's like a tree falling in
the woods," he said, because your credit history will not be known.
Becoming an authorized user on someone else's card is another option for
consumers. College students may do this with a parent's card, for example.
They also establish some credit history when they have a student loan. Even
when they are in school and payments are deferred, the loan will show up as
part of their credit history, Ulzheimer said.
Another option that is less well-known is to take out a credit builder loan
from a credit union. Instead of receiving the loan money upfront, a consumer
makes payments into an interest-bearing account for the life of the loan. At
the end of that time, the consumer receives the money with any accrued
interest.
Instead of granting credit to those with no jobs,
teenagers who live at home, illegal aliens, and other non-creditworthy
individuals, the CNBC advice seems reasonable enough. Instead, Obama wants
another credit free-for-all to expand housing and car loans.
Didn't we try that once already, with miserable results?
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
