TransUnion survey reports 5.8 million new consumers to credit in 2021
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- A TransUnion survey found that 5.8 million people opened their first credit account in 2021, up from 5.1 million in 2020.
- Gen Z borrowers made up 59% of consumers new to credit followed by Millennials at 21%.
- The survey found that the performance of new borrowers is equal to or better than that of existing borrowers.
for you Balance level It indicates your risk level as a consumer calculated on the basis of several pieces of your information Credit reportssuch as payment history, credit utilization ratioand types of accounts payable. Credit rating algorithms that calculate your credit score, eg Fico And vantagescoreAlso, include the age of your credit accounts in theirs.
Consumers who are new to credit will find their credit scores to be lower than those with a more extensive credit history. However, a new TransUnion survey of consumers new to credit shows that these new credit users aren’t necessarily a greater risk to lenders than established borrowers. In fact, some of them pose less risk to lenders.
TransUnion’s survey indicates critical trends among consumers who recently opened their first credit account in 2021 across nine countries worldwide.
New credit users, led primarily by Generation Z, are recovering to pre-pandemic levels
A TransUnion survey reported that 5.8 million consumers opened their first credit account in 2021, nearly reaching pre-pandemic levels. After rising continuously from 2017 to 2019, the number of new consumers took a hit in 2020, falling from 6.1 million in 2019 to 5.1 million.
Most of these new credit users were Generation Z borrowers, making up 59% of this group. Millennials followed closely next, and they made up 21% of new users of credit in 2021. The entire makeup of first-time borrowers in the US in 2021 breaks down across generations accordingly:
59% of Americans opened a credit card as their first credit account, followed by auto loans at 13%. The second credit account for most Americans was also a credit card, with 35% of new borrowers reporting that they opened another account to get better credit offers.
New credit consumers perform as well or better than established credit consumers
One key takeaway from the TransUnion survey is that while consumers who are new to credit often have lower credit scores, their score is not necessarily an accurate indicator of their level of risk as a borrower. These new borrowers have short payment histories and recent credit accounts, which keeps their credit scores low.
The survey found that credit consumers generally perform at similar levels to more established credit consumers in the nine countries surveyed. In some cases, though not in the United States, new credit consumers had lower delinquency rates than older credit consumers.
In the United States, 3.4% of new subprime mortgage borrowers were more than 90 days old. deviation against 2.2% of borrowers. Meanwhile, 1.2% of major new borrowers were more than 90 days past due, compared with 0.7% of new borrowers.
Takeaways from the TransUnion survey
Building credit can often be a counterintuitive and expensive experience. Higher interest rates can make it difficult to build a positive credit history, but you need a positive credit history to qualify for lower interest rates. until the The best credit building products It has exorbitant interest rates.
One of the points TransUnion made of this data is the need for alternative forms of data, such as rent or utility payments. It should be noted that although there are third parties that allow you to report these non-credit payments to Three major credit bureausExperian is the only credit bureau with an in-house service. trial batchto report these alternative payments.
One take advantage of TransUnion is the need for lenders to more frequently review the portfolios of new credit users, as many consumers feel the need to apply for more credit early on in their credit history because they feel their limits are too low.
TransUnion advises lenders to proactively identify outstanding borrowers and offer them credit line increases and other opportunities. “Data from our study shows that consumers new to credit are often good risks, crave credit, and will show loyalty to those financial institutions that offer them their first credit accounts,” says Charlie Wise, TransUnion’s President of Global Research. He co-authored the study.
How to build credit from scratch
Good credit is the cornerstone of building wealth, but getting it Good credit It’s an uphill battle. High interest rates that come with The first credit card Or the loan can be frustrating.
As a new borrower, consider products geared toward building credit, such as a A secured credit card Or a credit builder loan, it might be worth your time. These products are designed to create a payment history on your credit report without causing many risks to the lender, allowing you to borrow with a lower credit score.
Over the past few years, borrowers have seen additional ways to build credit, such as rental reporting services, which report rent payments to the credit bureaus, which are listed on your credit report. Experian Boost, released in 2019, allows you to add utility payments to your Experian credit report. In the years since it was first released, Experian Boost has added other regular payments like streaming service fees, internet bills, and music subscriptions.