Consumer finance can solve the problem of the mismatch between consumer income and their expenditure, and thus improve consumers’ welfare. Lack of credit history refers, incomplete credit history or old credit history, makes it difficult to evaluate a consumer's credit worthiness. If consumers' credit worthiness cannot be evaluated, financial services are difficult to attain and consumers will pay a higher cost. Understanding why consumers lack credit records and how to improve consumers’ credit record history records can help to promote inclusive finance and improve consumers the financial welfare.
This article looks at the problem of consumer credit history deficiency in the United States. based on the U.S. Consumer Financial Protection Bureau reporting. The main conclusion are as follows:
(1) The lack of consumer credit records is a widespread problem. There were 45 million adult consumers (18 and older) with credit history deficit problems, accounting for more than 20 percent of the U.S. adult population; Among them, lack of credit history was the most important cause of credit loss, with 26 million adult consumers without any credit record, 9.9 million with a low credit record and 9.6 million with an old record.
(2) There was an inverted U-shaped relationship between the lack of credit history and the age of consumers. 83.8% of consumers aged 18-19 had credit record deficits, and the rate dropped to 35.5% when they are 20-24 years old, and then gradually declined. The lowest point was 7.7% when they are 60-64 years old, and then gradually rises, increasing to 20.2% when they are over 75 years old.
(3) Lack of a credit record was negatively correlated with consumer income. In the low-income group, the problem of lack of credit record reached 45.1%; in the low-income group, the problem of lack of credit record was only 29.6% and 19% respectively; in the high-income group, the problem of lack of credit record was only 8.3%.
(4) The distribution of credit loss varies by ethnicity. Whites and Asians had lower rates of missing credit histories, at 16% and 17%, respectively; Blacks and Latinos had the highest percentage of missing credit records, at 27.8 percent and 27.6 percent, respectively. The percentage of people of other RACES with missing credit records was 24.2 percent.
(5) Credit loss was also distributed differently in urban and rural areas. The proportion of missing credit records was highest in rural areas, followed by towns and townships, then by urban centers and was lowest in urban suburbs. In urban centers and suburbs, high-income neighborhoods had a much lower percentage of missing credit records than low-income neighborhoods.
This main reasons for the lack of credit history are as follows:
More than a third of people's credit histories were missing because of their life cycles. Young people aged between 18 and 24 generally had no income or low income, and seldom use credit instruments, leading to a large proportion of lack of credit.
Financial services were in short supply. Some regions (such as rural and remote areas) offer less financial or credit services.
Insufficient demand for financial services. Some consumers only used cash for payment and distrust financial institutions and financial products.
The alternative financial products used had no credit history. Some consumers used high-interest alternative financial products, such as cash loans, that were not reported to credit agencies.
Four steps can be taken to solve the problem of missing credit records. (1) Promote consumer credit education. Enable consumers to understand the importance of credit, encourage them to check their own credit report, and to know how to solve the problem of a lack of credit records; (2) Use financial products that generate credit records. Credit cards, student loans, and retailer loans, for example, helped 37.6 percent, 15.8 percent, and 14.1 percent of consumers go from missing credit history to visible credit record.(3) Build a credit history with the help of others. By securing accounts and credit card add-ons, 14.9% and 10.9% of consumers achieved visibility from lack of credit. (4) Provide alternative data to build a credit history. Reporting your daily non-lending records, such as communications, utilities and rent bills, to a credit rating agency either on your own or through a service provider could also help.
In short, in the United States, a country with a highly developed credit market, up to 20 percent of the adult population still lacks a credit history, making it difficult for them to access convenient financial services. Although in our country, the People's Bank of China credit reporting center notionally has 1.02 billion records of natural persons, which covers almost all the adults, only 361 million of these IDs includes detailed credit records. In other words, 64.6% of Chinese consumers have missing credit records. Further study is needed to identify why Chinese consumers lack detailed credit records to identify how they can be provided with affordable financial services.
