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Why 3 In 10 Americans Have Given Up On The Traditional Credit System

Roughly 44 million consumers in America are invisible to the U.S. credit system and are struggling because of it. Breaking into the credit system can take years and a lack of credit history puts people at a disadvantage when it comes to accessing better housing, more employment opportunities and lower interest rates. 

A Credit Sesame survey of 5,000 Americans aimed to better understand those with a thin credit file or no credit score at all. The survey found that nearly one third of those without a credit score or new to credit and those with limited to inactive credit history feel shut out of America’s financial system and have given up on improving their credit.  

Defining Credit Invisibles

Unsurprisingly, those most likely to struggle with credit tend to be young, female and nonwhite. Women are being hit the hardest with twice as many women being categorized as credit invisible compared to men.  

Credit invisibles are also more likely to be unemployed or not working compared to the rest of the population. Only 17% can say they have a full-time job and 47% say they are living paycheck to paycheck, compared to 36% of the total survey respondents having a full-time job and 44% living paycheck to paycheck. The thin file or no credit score group skews lower income and is already excluded from many traditional financial products, with less than half even holding a debit card. 

The survey found that 3 in 10 Americans without credit aren’t trying to get into the system at all—they’ve given up. This may be due to factors including difficulty finding a job, recovering from a financial mistake or losing trust in the financial system. A survey respondent said, “Too much time out of the labor force. I have defaulted to no credit status.” 

The Credit Invisible Experience

Almost a third (28%) of credit invisibles say they never had a chance to build good credit—the system was stacked against them from the start. One survey respondent said, “I was misinformed about credit and the way that it works and the odds were never in my favor from the beginning.” 

Credit invisibles need help improving their credit but many do not know where to start. Credit education (or lack thereof) has a lasting impact. Another survey respondent, a millennial woman, said, “I never learned how to use credit properly, which devastated my score. Now that I finally understand it better, I’m working on rebuilding my credit.” 

This is why Credit Sesame is dedicated to providing educational tools that educate and empower Americans in their financial decisions. However, it can’t stop there. The credit system as it stands today is flawed and too many people are being left behind. Credit Sesame is challenging traditional financial services through developing technology that looks at credit in a more holistic way with alternative data points. 

Creating a More Inclusive Model

Credit Sesame recently announced a new credit builder banking technology that allows consumers to use their cash to establish and build credit quickly.1 This feature was specifically built for people who have been shut out of the system in hopes to pave the way for all consumers to access credit in a quick and simple way.

Credit Sesame’s credit building technology allows consumers to use their Sesame Cash debit card to build their credit, without falling into debt. With this debit card, there is no need for another credit card, a credit check, borrowing from lenders, or falling into further debt in efforts to build a credit score. By tracking positive behaviors such as on-time payments and cash in the bank, Credit Sesame can establish a customer’s credit worthiness and help those who have been left out from the credit system such as immigrants, young people and those who have been formerly incarcerated. 

Thirty one percent of the credit invisible or thin file cohort are fearful and uncertain about the future because of their credit score. Credit Sesame is proud to lead the way and bring new solutions that facilitate financial inclusion for those new to credit, providing an easier path to financial stability.

In addition to utilizing the Credit Sesame credit builder through Sesame Cash, here are a few quick tips to help boost your credit score if you find yourself in the credit invisible or thin file group: 

  • Strive to make at least minimum payments on your bills: Missing a payment can have a significant negative impact, especially if you have a short credit history. 
  • Apply for a secured credit card: Think of this as a “starter credit card” that can be an effective way of building credit history. You’ll be required to pay a deposit upfront that effectively becomes your credit limit on that card, so you essentially end up paying yourself back while growing your credit and payment history.
  • Keep your credit usage as low as possible: Your credit usage, also known as your debt-to-credit ratio, compares the total amount you owe on all your credit cards with the total amount of credit you have available. Try to keep your credit usage at or below 30%  of your total credit limit each month—the lower the better.
  • Age matters: don’t close any accounts: The age of your credit also impacts your score. It’s never too early to start! Try to open a line of credit as soon as possible if you are in the credit invisible group. Once you have a line of credit, keep it open even after you’ve paid it off.
  • Get personalized recommendations and rewards with Credit Sesame: Sign up for free at CreditSesame.com and we’ll arm you with information and personalized recommendations that can help you work toward building  your credit score. And with our online bank account, Sesame Cash, you could earn up to $100 just for improving your credit score.12

 

Sesame Cash is a prepaid debit card issued by Community Federal Savings Bank (CFSB). Building credit with Sesame Cash requires you to also open a secured line of credit with CFSB that is reported to the credit bureaus. Use money from your Sesame Cash account to create a secured line of credit (Secured Account). Your debit card purchases are then added up to create a balance on your Secured Account. As you make these purchases, an amount equal to the balance on your Secured Account is also set aside in your Sesame Cash account to ensure you can make timely payments to pay off the balance on your secured line of credit at the end of each month, allowing you to build a positive payment history. Credit Sesame does not guarantee credit score improvement. Any predicted credit improvement from the use of your Secured Account assumes that you will maintain healthy credit habits, including paying bills on time, keeping credit balances low, avoiding unnecessary inquiries, appropriate financial planning, and more.
2 This is a limited time offer. To be eligible for cash rewards, a deposit of $25.00, every 30 days, must be made into your Sesame Cash account. Rewards earnings are available for credit score improvements of ten points or more within a 30-day reward cycle. Improvements are calculated from your baseline credit score, as determined by Credit Sesame. Please review the full program terms for more details.
Survey Methodology: Credit Sesame conducted this research using an online survey prepared by Method Research and distributed by Dynata among n=5,000 adults in the United States. The sample was balanced by census targets for age, gender and ethnicity to be nationally representative of the US population. Data was collected from October 16 to October 30, 2020.
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Published August 31, 2021 Updated: September 1, 2021
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