Rural, ‘micro’ areas hold highest incidence of ‘credit invisibles,’ bureau study finds

Consumers in rural areas and “micropolitan statistical areas” – non-rural census tract areas outside of metropolitan statistical areas (MSAs) – have the highest incidence of being “credit invisible,” according to a new report issued Monday by the federal consumer financial protection agency.

The report states that approximately 15% of consumers over age 25 in rural areas can be classified as “credit invisible,” and approximately 12% in micropolitan areas.

According to The Geography of Credit Invisibility published by the Office of Research of the Bureau of Consumer Financial Protection (BCFP, formerly known as the CFPB) , consumers in the two areas are more likely not to have a credit record maintained by one of the three nationwide consumer reporting agencies (NCRAs). The areas also include those consumers that have a credit record that contains either too little information (“insufficient unscorable”) or information that is deemed too old to be reliable (“stale unscorable”), according to the report.

The study, according to the bureau, follows up on its earlier work examining “credit invisibles” and “becoming credit visible.” It examines geographic patterns in the incidence of credit invisibility to assess the extent to which where one resides is correlated with one’s likelihood of remaining credit invisible.

“While determining the underlying factors that cause sustained credit invisibility is difficult and beyond the scope of this study, highlighting geographic variation in credit invisibility can aid policymakers and advance the conversation around potential causes and solutions,” the study states.

“The importance of geography in accessing credit has been a long-standing concern for policymakers, going at least as far back as early efforts to combat redlining,” the study adds.

The report found that the relationship between income and credit invisibility is much weaker in rural areas, where credit invisibility is higher even if the tract’s relative income level is higher. “Specifically, upper-income tracts in rural areas have concentrations of credit invisibility that are comparable to those of LMI (low- to moderate-income) tracts in the principal cities of MSAs and higher than those of all tracts in micropolitan areas or suburban areas of MSAs,” the report stated.

Share of people under 25 who transitioned out of credit invisibility via a credit card, by tract income level and geography (BCFP graphic)

The report also found a lower incidence among consumers in rural areas of opening a credit card account in first establishing their credit histories. Using a graph, the report displayed what it called “two notable patterns.”

“First, the upward-sloping relationship between neighborhood income and the likelihood of establishing a credit card is much stronger in MSAs than it is in Micropolitan or rural areas,” the report stated. “In contrast, outside of MSAs, the relationship is fatter, much like the overall relationship between the incidence of credit invisibility and neighborhood income in these areas.

“Second, the overall rate of using a credit card as an entry product is much lower (about 10 percentage points) outside of MSAs than compared to within MSAs,” the report notes.

However, the report found “little evidence” that bank proximity is an important factor in explaining why consumers are credit invisible. The report stated that the results of the study were consistent with previous studies (such as the Federal Deposit Insurance Corp.’s (FDIC) 2015 National Survey of Unbanked and Underbanked Households) which found, the BCFP report states, “that proximity to a bank is one of the less common reasons that consumers remain unbanked.”

Data point: The geography of credit invisibility