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Patterns of New-to-Credit Consumers

What's the credit profile of “new-to-credit” consumers? FICO staff recently presented new research on this topic at the Consumer Financial Protection Bureau’s Financial Empowerment Convening. Our analysis showed that for this population learning how to use credit, responsible management does lead to improving credit scores and greater access to credit.

Our findings were based on a random 5% of credit reports from a leading consumer reporting agency. The analysis focused on consumers who were new-to-credit in October 2005 and studied how their credit changed during their first six years (2005-2011). This population represents approximately 1.2 million consumers.

First credit account—For half of this population (50.1%), a bankcard was one of their initial credit accounts of choice. Next most popular in order of preference were a student loan, retail card and auto loan. This breakdown is found in Figure 1 below.


Early median score—After the first year (October 2006), the median FICO® Score of this population was 659. By comparison, the national median FICO® Score was 713. With little information on their credit reports, the scores for this group were fairly concentrated, with 50% of the group scoring between 580 and 700.

This gradually changed as the group gained credit experience. By October 2011, one-third of the group scored above 700, another third scored in the 580 to 700 range, and the remaining third scored below 580. Their median score had dropped 16 points (643), illustrating how vulnerable the scores of new credit users can be during economic recession. By comparison, the national median score had lost two points (711).

Significant score factors—We also investigated which credit factors played significant roles in moving the scores of this population. We profiled those people in the group whose scores improved by 50 or more points between October 2006 and October 2011 (upward movers), and those whose scores declined by 50 or more points (downward movers). We found the strongest factors to be payment behavior, revolving balances and balance-to-limit ratio.

The great majority of upward movers showed no accounts 30 or more days past due after six years, while downward movers showed a median value of four delinquent accounts. Revolving utilization was also a telling factor. For upward movers, the median value for revolving account utilization was 7%, and the median value for total revolving balance was $532. The corresponding figures for downward movers were 53% and $1,057.

Access to more credit—As Figure 2 below shows, after two years, the majority of people in the new-to-credit group had increased their available revolving credit to over $2,000. In October 2005, only 7.6% had revolving credit amounts of at least $2000. This number increased to 50.8% two years later. We also found that people whose scores improved were more successful at qualifying for higher credit limits and larger loans.

By October 2011, the median value of revolving credit limits for upward movers was $5,400, and only $1,062 for downward movers. Similarly, upward movers showed median total balances of $16,405, compared with $9,028 for downward movers.

As our analysis showed, responsible management of credit does lead to improving credit scores and more access to credit. This reinforces the ongoing need for education in the area of financial responsibility and credit management, which can play a key role in fostering more upward movers and reducing the number of downward movers.

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