Here's How Banks Are Helping People Without a Credit Score

by Maurie Backman | Updated July 21, 2021 - First published on June 30, 2021

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Not having a credit score could make it difficult to borrow. But that may soon change.

Whether you're applying for a new credit card, a personal loan, or a mortgage, your credit score is apt to play a large role in whether you get approved or not.

If your credit score is great, you're likely to not only get a chance to borrow money when you want to, but do so at affordable rates. On the other hand, with a poor credit score, you may be denied a loan or get stuck with a higher interest rate on it.

But what if your credit score is neither good nor bad, but rather, nonexistent? Such is the case for an estimated 53 million people who are "credit invisible" -- meaning, they don't have enough of a credit history to have a score attached to their names.

Often, having no credit score is just as bad as having poor credit, or, in some cases, even worse. Banks, credit card companies, and other lending institutions often deny credit to borrowers with no credit score whatsoever. But now, some banks are stepping up to try and prevent that scenario.

A lifeline for people without a credit score

It's common for some people to not have a credit score due to a lack of credit history.

Imagine your parents paid all of your bills through college, and now, you have your first job and want to apply for an apartment. Your landlord might run a credit check only to find that you have no credit score because you've never been on the hook for paying bills. If that's the case, that landlord might deny you a lease, even if you're a responsible person with a well-paying job that can easily cover the rent.

Incidents like this happen all the time to those who are credit invisible. But now, some of the country's largest banks are banding together to share checking and savings account information in the hopes of helping people without credit scores get approved to borrow money when they want to.

JPMorgan Chase, Wells Fargo, and other well-known banks have tentatively agreed to a plan to share non-traditional account holder data, like deposit and bill payment activity, to help those without a credit score get approved for loans and credit cards.

Generally, the only information that's recorded and tracked for credit score purposes is data related to installment loans and revolving credit lines, such as what your credit cards give you. As such, if you've been paying off an auto loan and a mortgage for years, that helps build your credit. But if your only bills to date have been utilities, groceries, and healthcare, and you pay for those in cash or out of a checking account, they won't get factored into your credit history.

Say you pay your water bill on time every month through your bank account. Unfortunately, that positive activity normally won't count toward helping you build a credit score. But under this new plan, it could. In fact, if this plan goes through, it could give millions of Americans access to more affordable borrowing options.

Pushing for change

The push for banks to arrange for a data-sharing agreement came from the Roundtable for Economic Access and Change, or Project REACH, a program run by the Office of the Comptroller of the Currency. The goal of the project is to reduce barriers that prevent some borrowers from gaining access to credit. These borrowers, historically speaking, are disproportionately lower earners and people of color. And they often face higher borrowing costs because, in the absence of a credit score, they're commonly forced to resort to expensive options, like payday loans.

If you don't have a credit score but have a history of paying bills on time through your bank, you may soon be in luck. If that positive information can be used to help you establish creditworthiness, it could open the door to a world of opportunity.

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