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 HSFPP Article

The Credit Invisibles: 4 Challenges Beyond Credit Accessibility

by Kimberly Roy, HSFPP Program Manager

I met a teacher at a conference who shared a viewpoint we sometimes hear from other educators. He claimed that students should be taught never to use credit. He said we should teach every student that if they can’t pay for school, a car, or even a house with cash, then they shouldn’t buy it.  Unfortunately, this does not consider the complete picture of how credit impacts an adult’s financial landscape.

HSFPP does not take a stand on whether credit should or should not be used. Instead, we encourage students to understand their options and the potential costs and benefits of their credit choices.

It’s important to tell students that credit itself is not good or bad, but how we use credit and manage debt can be beneficial or detrimental. Using a credit card to go on a spring break trip when the student does not have a job to pay back the card is very different than taking out a student loan to invest in a degree that could provide a higher income and pay for itself many times over.


See also the infographic Challenges of the Credit Invisible.

Categories of Credit Account

Credit cards and traditional loans are not the only form of credit. In addition to revolving credit and installment loans, consumers use “open” credit accounts.

Open accounts are paid in full every month without a balance that rolls forward, and generally do not charge interest. These typically include utilities, cellphones and other service contracts. Most service providers only report to the credit bureaus when a customer has a late or missed payment. Rarely do these companies report positive monthly payments. Therefore these accounts can harm your credit score but rarely help it.

Limited Credit History: Financial Challenges Beyond Credit Accessibility

According to the Consumer Financial Protection Bureau (CFPB) Credit Invisible Policy Report, in 2015 almost 1 in 5 U.S. adults either did not have a credit history or had “unscorable” credit files (either due to insufficient history or lack of recent history). These people without credit are called the “credit invisible.” When looking only at young adults 18 to 19 years old, the rate of credit invisibility soars to between 64 and 67 percent.

Without a credit history, these 45 million credit invisible and unscorable consumers often are denied access to mainstream credit options. Even if an individual does not plan to have a credit card or take out an installation loan, being credit invisible still provides other significant challenges:

1. Renting an apartment. Most landlords pull a credit history on prospective new tenants to make sure that they will receive the rent on time each month. A lack of credit history limits options and can result in the landlord requiring more than the traditional first and last month rent. Some landlords will allow a co-signer, but not every young adult has a person with strong credit who is willing to co-sign.

2. Auto insurance. In most states the cost of auto insurance is impacted by an individual’s credit score. Lacking sufficient credit history flags the individual as a potential risk and can increase the premiums for his or her insurance.

3. Utility and service contracts. Providers of utilities and services such as cellphone accounts often will look at an individual’s payment history in a credit report to determine whether or not to provide service, whether or not to require a deposit, or whether or not to require a letter of guarantee that another party will cover the bill if the customer is unable to pay.

4. Employment. In some states, employers can request permission to check a new hire’s credit history late in the hiring process. This happens infrequently but might occur when the position includes managing money on behalf of the company. For credit invisible individuals this can mean being turned down for a job or taking a job with fewer responsibilities.

Take Action

  • Teach students to understand the potential costs and benefits of various credit options, including the financial costs of having a limited credit history.
  • Use the CFPB’s “Building Credit from Scratch” to help students explore ways to build a positive credit history.
  • The Federal Trade Commission recommends that teens check their credit report when they turn 16. Even though young teens cannot open credit accounts, thieves can sometimes target them for identity theft. A 16-year-old who checks his or her credit report has an opportunity to correct errors due to fraud or misuse before he or she applies for a job, an apartment, or money for school.
  • A sound practice for a jobseeker facing a potential credit check is to check his or her credit report for any inaccuracies or issues that could appear to an employer as red flags of money mismanagement.