New to Credit Consumers Are ‘Good Risks’: 4 Ways To Overcome Initial Hurdles and Improve Your Score

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Qualifying for a loan or credit card for the first time can be a challenge because lenders are wary of extending credit to those with no credit history. But once they’ve been approved, new-to-credit (NTC) customers tend to perform as well or better than borrowers with established credit, according to a new study from TransUnion.

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In the U.S., NTC consumers with credit scores in the near-prime tier had lower delinquency rates than credit-served consumers with the same age and risk profiles on the initial credit cards they opened — an indication that many are careful to make timely payments on their first-ever credit cards in order to preserve ongoing access to this new source of credit, the study noted.

“Lenders are continually assessing and updating their lending strategies — approval criteria, loan amounts, pricing, etc. — based on new data and insights. The goal of this study is to analyze and shed light on a segment of borrowers — NTC — who typically have a more difficult time getting access to new credit than experienced credit borrowers with more established credit histories,” said Charlie Wise, head of global research at TransUnion. “If lenders are able to use these insights to make credit more available to NTC consumers, and at more favorable terms, that will benefit NTC consumers.”

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The study, released on Jan. 25, found that 5.8 million U.S. consumers opened their first credit product and became new-to-credit in 2021. Another 3 million became NTC through the first half of 2022. Gen Z made up the largest part of the 2021 NTC group at 59% of the total, followed by millennials (21%), Gen X (12%) and baby boomers (7%). Many were approved for credit cards.

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Having access to a convenient means of spending was the top motivator for American NTC consumers, a finding that is also emphasized by the fact that the most common first product opened is a credit card.

“It is not surprising. Credit cards offer significant convenience to consumers as a means of transacting and making both everyday and large ticket purchases. It is also a secure way of making online purchases, offering protection benefits that are not always available on debit cards or payment app purchases,” said Wise.

Among the study’s conclusions: “NTC consumers around the globe are generally good risks when compared to other established borrowers with similar credit risk profiles.” In nearly all regions of the world, there were instances where NTC borrowers had lower delinquency rates on newly opened credit cards than established borrowers.

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The hard part is convincing lenders to approve credit if you have no credit history, said Charlie Wise, head of global research at TransUnion.

“A hurdle for many NTC consumers applying for their first card is that they often have no history on their credit file and are unscoreable using a traditional credit score. Some lenders are hesitant to extend new credit to such consumers, but certainly not all,” Wise pointed out.

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Here’s a look at four steps Wise recommended NTC consumers take to overcome approval hurdles and improve credit scores once they have been approved:

  1. Ask to be an authorized user on active credit accounts of a parent, relative or friend. You won’t be responsible for making payments, but payments on the account will be reported on your own credit file, helping you build a scoreable credit history.
  2. Research credit card issuers to identify those that are mostly likely to offer cards to consumers with no credit history. Making on-time payments on these cards will quickly help you build a credit history and score.
  3. If you can’t get approved for an unsecured credit card, find an issuer that offers secured cards that require a cash deposit to serve as your credit limit. This is another way to overcome hurdles and build a credit history.
  4. Once you have a new credit account, be sure to make your payments on time. If you have a credit card account, try to pay the balance in full each month. Also, aim to keep your utilization rate — the balance as a percentage of total credit limit — below 30% to boost your credit score.
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Vance Cariaga contributed to the reporting for this article.

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.
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