TransUnion Study: New Borrowers May Be Less Risky Than They Look

Researchers for credit bureau TransUnion say the delinquency experience with what it calls “new-to-credit” consumers is comparable to, or even sometimes better than, similarly situated consumers with more established credit history. That suggests to auto lenders that those thin-file consumers may be less risky than they appear.

That’s especially relevant in the U.S. market where it’s common for consumers to secure auto loans as their first traditional credit accounts, says Charlie Wise, TransUnion’s head of global research and author of a recent study on new-to-credit consumers.

“The U.S. is definitely unique in its use of auto lending,” Wise says. “This tends not to happen in any other market.”

TransUnion defines “traditional” credit accounts, such as credit cards and auto loans, as those that credit bureaus (such as TransUnion) constantly monitor,

The study includes data and insights from millions of consumers in the U.S., Brazil, Canada, Colombia, Dominican Republic, Hong Kong, India, Philippines and South Africa.

In most markets, including the U.S., many consumers obtain credit cards as their first traditional credit accounts. The study shows 59% of U.S. new-to-credit consumers start with credit cards. Auto loans are No.2, at 13%.

 In other developed markets, the share of auto loans as the initial credit product hardly registers, Wise says.

It’s also fair to note that compared with many other global markets, U.S. auto lenders have access to many reliable “alternative data” such as payment history for rent, utilities and other monthly bills, Wise says. That reduces the risk associated with new-to-credit consumers, he says.

“We know from the work TransUnion does with the auto industry…(that it has) some of the most prolific users of alternative data,” he says. “Auto lenders…are comfortable with making relatively large commitments, based on alternative data.”

Wise points out that structuring loans to limit loan size compared to the value of the collateral also lowers risk.