The three major credit bureaus keep detailed records of consumers’ financial footprints, which provides the basis for credit scores. But they’re also working to help people who don’t yet have credit histories and so can’t be scored.
The credit bureaus are working closely with the nonprofit organization Credit Builders Alliance to bring “credit invisible” or “unscorable” consumers into the mainstream financial sphere.
Who’s ‘invisible’ or ‘unscorable’?
In 2015, the Consumer Financial Protection Bureau released a report showing:
- One in 10 U.S. adults are “credit invisible.” That means that 26 million consumers don’t have a credit history with one of the nationwide credit reporting companies.
- An additional 19.5 million have “unscorable” credit files — either thin files with an insufficient credit history (9.9 million) or stale files that don’t have any recent credit history (9.6 million).
- In sum, there are 45 million people who may be denied access to credit because they don’t have credit records that can be scored.
This means nearly 20% of the U.S. population is struggling to access financial services that many of us take for granted.
While many factors prevent these people from interacting with traditional banks, one significant obstacle is lack of a credit profile. But this is where they faced with a Catch-22: Without a credit profile, they can’t access loan products, but without access to loan products, they can’t build a credit profile. (If you’re not sure whether you have a credit profile or what’s in it, you can get a free credit report from NerdWallet.)
What is Credit Builders Alliance?
Fortunately, many organizations are trying to bring conventional banking services to underserved communities. One example is the CBA, which works as a bridge between the major credit bureaus and nonprofits that help people who don’t have full access to banking services.
Dara Duguay, executive director of the CBA, says: “We were founded in 2006 and work with non-depository institutions that do lending in the community for people who are low-income.” At that time, many of these institutions couldn’t report their customers’ credit activity, which would have helped their customers build credit scores, she says. “Credit bureaus were not interested in having a relationship with the nonprofits. CBA helps [these institutions] with the reporting process from A to Z.”
Most institutions the CBA works with are community development financial institutions. These small lenders work in communities to provide financial services, including loans, to people who otherwise wouldn’t be able to access them. Credit Builders Alliance offers two primary services to its member institutions: CBA Reporter and CBA Access.
CBA Reporter: This lets small lenders report borrowers’ payment information to the credit bureaus. As Duguay explained, many microlenders don’t have the resources to work with the major credit bureaus. But by working through the CBA, they’re able to help establish credit reports for their customers, an important step that can position underserved borrowers to work with traditional banks in the future.
CBA Access: This allows CBA partners to pull customers’ credit reports. Small lenders and nonprofits often provide customers with financial education; having access to a credit report helps the educator and customer work together on setting individual credit goals and tracking progress.
Where the credit bureaus come in
The CBA’s work with nonprofits relies on the participation of major credit bureaus. As of December 2016, all three major credit bureaus were participating in CBA Reporter and CBA Access. This means that CBA members can report borrower payment information and pull customer credit information from Equifax, Experian and TransUnion.
Also, the CBA is training nonprofits to help clients with credit building and is working to connect affordable-housing agencies with rent-reporting agencies. This allows residents to build their credit in a new way; until recently, it was almost impossible for most renters to incorporate housing payments into their credit profiles.
Updated on March 20, 2017.