5.8 million consumers opened a credit account for the first time in 2021, new TransUnion survey finds

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• A TransUnion survey found 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 new-to-credit consumers followed by Millennials at 21%.
• The survey found that new-to-credit borrowers perform equal to or better than established borrowers. 

Your credit score indicates your risk level as a consumer calculated based on several pieces of information on your credit reports, such as payment history, credit utilization ratio, and types of credit accounts. The credit scoring algorithms that calculate your credit scores, such as FICO and VantageScore, also include the age of your credit accounts in their calculations.

New-to-credit consumers will find their credit scores are lower than those with a more extensive credit history. However, a new TransUnion survey on new-to-credit consumers 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.

The TransUnion survey reports on critical trends among consumers who recently opened their first credit account in 2021 across nine countries across the globe. 

New credit users, primarily led by Gen Z, are recovering to pre-pandemic levels

The TransUnion survey reports that 5.8 million consumers opened their first credit account in 2021, nearly reaching pre-pandemic levels. After rising consistently from 2017 to 2019, the number of new consumers took a hit in 2020, dropping from 6.1 million in 2019 to 5.1 million.

Most of these new-to-credit users were Gen Z borrowers, making up 59% of this group. Millennials followed closely after, making up 21% of new-to-credit users in 2021. The entire composition of US-based first-time borrowers in 2021 across generations breaks down accordingly:

59% of Americans opened a credit card as their first credit account, followed by auto loans at 13%. Most Americans' second credit account was also a credit card, with 35% of new borrowers reporting that they opened another account for better credit offers. 

New credit consumers perform equally or better than established credit consumers

One of the key takeaways from TransUnion's survey is that while new-to-credit consumers often have lower credit scores, their score isn't necessarily an accurate indicator of their risk level as a borrower. These new borrowers have short payment histories and young credit accounts, keeping their credit scores low.

The survey found that credit consumers generally perform at comparable levels to more established credit consumers across the nine countries surveyed. In some cases, though not in the US, new credit consumers had lower delinquency rates than older credit consumers.

In the U.S., 3.4% of sub-prime new borrowers were over 90 days in delinquency compared to 2.2% of established borrowers. Meanwhile, 1.2% of prime new borrowers were over 90 days late on payments, compared to 0.7% of new borrowers.  

Takeaways from TransUnion survey

Building credit can often be a counterintuitive and expensive experience. High interest rates can make it challenging to build a positive credit history, but you need a positive credit history to qualify for lower interest rates. Even the best credit building products have expensive interest rates. 

One of TransUnion's takeaways from this data is the need for alternative forms of data, such as rent or utility payments. It's worth noting that while there are third parties that allow you to report these non-credit payments to the three major credit bureaus, Experian is the only credit bureau that has an in-house service, Experian Boost, for reporting these alternative payments. 

Another of TransUnion's takeaways was the need for lenders to frequently review new credit users' portfolios, as many consumers feel the need to apply for more credit early in their credit history as they feel their limit is too low.

TransUnion advises lenders to proactively identify solid borrowers and offer them credit limit increases and other opportunities. "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," says Charlie Wise, head of global research at TransUnion and co-author of the study.

How to build credit from scratch

Good credit is a cornerstone of building wealth, but obtaining good credit is an uphill battle. The high interest rates that come with your first credit card or loan can prove frustrating. 

As a new borrower, looking into products geared toward building credit, such as a secured credit card or credit builder loan, may be worth your time. These products are designed to build a payment history on your credit report without posing many risks to a lender, allowing you to borrow with a low credit score.

Over the last few years, borrowers have seen additional avenues for building credit, such as rent reporting services, which report your rent payments to credit bureaus, which go on your credit report. Experian Boost, released in 2019, allows you to add utility payments to your Experian credit report. In the following years since it was first released, Experian Boost has added other regular payments such as streaming service fees, internet bills, and music subscriptions.