New TransUnion Study Finds Canada’s New-to-Credit Consumers Prove to be Similar, if Not Better, Risks Than Established Credit Users
Consumers from all generations access loans each year for the first time and can prove to be good risks
New-to-credit consumers – those early in their credit journeys – in Canada and across the globe generally perform as well or better than borrowers with established credit and similar risk scores. This finding from a newly released TransUnion (NYSE: TRU) global study1, “Empowering Credit Inclusion: A Deeper Perspective on New-to-Credit Consumers”, may give some assurance to lenders in both developed and developing credit markets that they can extend additional credit products to such consumers without incurring materially higher delinquencies.
The study included data and insights about millions of consumers in varied global markets, including Canada, Brazil, Colombia, Dominican Republic, Hong Kong, India, Philippines, South Africa, and the United States. TransUnion defined a new-to-credit consumer as one with no prior credit history on their credit bureau file who opened their first-ever, traditional credit product such as an auto loan, credit card or another loan unique to individual regions. The study then examined the behaviours and performance of those new-to-credit consumers over the subsequent two years after opening their first credit product.
“A particular focus around the topic of financial inclusion is credit inclusion — the ability of consumers to access traditional lending products, such as credit cards, mortgages and personal loans. These products serve as a means to financial mobility for consumers and can be a gateway to a better quality of life, enabling homeownership, business formation and wealth creation,” said Charlie Wise, co-author of the study and head of global research at TransUnion. “The more consumers who can participate in credit markets in a region, the greater the opportunities for broad economic inclusion. The data from our study demonstrate that new-to-credit consumers are often good risks who are hungry for credit and will show loyalty to those financial institutions that offer them their first credit accounts.”
In Canada, 983,000 consumers opened their first credit product and became new-to-credit (NTC) during 2021, with 81% of these opening a credit card as their first product. In 2021, Gen Z made up the largest part of this group with 60%, followed by Millennials (26%), Gen X (8%) and Baby Boomers (5%). In Canada especially, many of these older consumers are immigrants who are restarting their credit journey in their new country. One of the main takeaways from the study was that NTC consumers around the globe are generally good risks when compared to other established borrowers with similar credit risk profiles. Furthermore, credit cards are generally the first credit product opened by most NTC borrowers in many of the regions studied, similar to the findings for Canada.
To better understand credit performance, the study looked at NTC consumers who opened credit cards as a subsequent product over their initial two year journey and the delinquency performance after six months on those cards. It then compared them to the delinquency rate of credit-served consumers who also opened cards in the same time period. The study found in the near prime and prime score bands — the score ranges where many NTC consumers fall early in their credit journeys — the delinquency rate for NTC consumers was comparable to, or even better than, more established credit-served consumers. This trend was seen in both pre-pandemic and pandemic periods.
In nearly every region, depending on risk tier or time period of origination, instances occurred in which NTC borrowers had lower delinquency rates on newly-opened credit cards than established borrowers. In Canada, on subsequent credit card originations after opening their first account, NTC consumers had half the delinquency rate levels compared to credit-served consumers in the same near prime and prime score ranges. This is an indication that many NTC consumers are careful to make timely payments on their credit cards in order to preserve ongoing access to this source of credit, and that the NTC segment is a potentially attractive one for lenders looking for profitable growth.
“New-to-credit consumers are credit-hungry, and are typically very intentional about managing their new credit products carefully,” said Matt Fabian, director of financial services research and consulting at TransUnion. “As part of their retention strategy for this group of consumers, lenders would do well to perform frequent portfolio reviews and provide new offers as well as credit limit increases to these consumers more often, as they may be likely to seek better interest rates or accounts with higher limits from other providers, using their newly established credit history.”
Better understanding NTC borrower tendencies in Canada
TransUnion also undertook a survey-based market research study to understand the voice of NTC consumers, which included responses from 8,465 NTC consumers from a range of markets, including Canada, Brazil, Colombia, Dominican Republic, India, Philippines, South Africa and the U.S.
The study found that new expenses were the primary driver for opening a first lending product in nearly all markets, excluding Canada and the U.S., where having access to a convenient means of spending was the top motivator. This is supported by the choice of first product types, where in Canada and the U.S. the most common first product opened is a credit card.
A majority of NTC consumers across all regions, with the exception of India, reported receiving a credit product at the first institution where they applied — without needing to go to multiple lenders. In Canada, 63% of NTC borrowers reported receiving a credit product from the first institution where they applied.
The study also found that convenience is key for NTC borrowers and may portend more opportunities for lenders in the future. In selecting which institution to open their first product with, convenience was cited as the top criterion in all regions except for Brazil. In Canada, 31% of Canadians cited convenience as their top factor. Lenders providing an NTC borrower with their first account also may benefit by building loyal customers.
Finally, the study found that on average, about six in 10 NTC consumers said their need for credit will increase in the next three to five years, with the highest levels in developing markets (led by India at 79%). Approximately 47% of Canadian NTC consumers stated their need for credit would rise in this same timeframe.
“It’s clear that new-to-credit borrowers around the globe and in Canada will play a large role in the growth of many lenders’ books of business,” said Fabian. “Banks and other financial institutions who use alternative data while providing products, channels and a positive onboarding process will likely be the ones who succeed in building loyalty with this segment of the population.”
For detailed information about all global markets represented in the study, please click here.
1All data points referenced throughout this release are attributed to TransUnion’s 2022 Global New to Credit Survey. Any inquiries on this data can be directed to MarketingTUC@transunion.com.
About TransUnion (NYSE: TRU)
TransUnion is a global information and insights company that makes trust possible in the modern economy. We do this by providing an actionable picture of each person so they can be reliably represented in the marketplace. As a result, businesses and consumers can transact with confidence and achieve great things. We call this Information for Good®. TransUnion provides solutions that help create economic opportunity, great experiences and personal empowerment for hundreds of millions of people in more than 30 countries. Our customers in Canada comprise some of the nation’s largest banks and card issuers, and TransUnion is a major credit reporting, fraud, and analytics solutions provider across the finance, retail, telecommunications, utilities, government and insurance sectors.
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