More than 45 Million Americans are Either Credit Unserved or Underserved; Approximately 20% Migrate to Being Credit Active Every Two Years
TransUnion releases global study that underscores the importance of financial inclusion
More than 45 million consumers are considered to be either credit unserved[i] or underserved[ii] in the United States, according to a new global TransUnion (NYSE: TRU) study – “Empowering Credit Inclusion: A Deeper Perspective on Credit Underserved and Unserved Consumers.” However, the study found that about one in four consumers (24%) who started as credit underserved were found to have migrated to becoming credit active in a two-year window prior to the pandemic. During the height of the pandemic, the percentage of consumers becoming more credit active decreased slightly to 22%, with the profile of those consumers skewing younger than the pre-pandemic sample.
In addition to the United States, the TransUnion global study observed consumer credit behavior in Canada, Colombia, Hong Kong, India and South Africa, to get a better sense of the market size of these unserved and underserved consumer segments.
“Our study clearly points to hundreds of millions of consumers around the globe being credit unserved or underserved,” said Charlie Wise, senior vice president and global head of research and consulting at TransUnion. “These credit disadvantaged consumers are often unable to access financial products and services because they have no, or little, credit history. This study served to better understand how many people are truly under- or unserved from a credit perspective, while also determining paths for them to gain more credit opportunities.”
The study explored the characteristics and behaviors of credit unserved and underserved consumers and their overall sentiments towards credit, while offering key insights into the credit journeys of these consumers. Unserved consumers are defined as any person who has never had an open traditional credit product (such as a credit card, personal loan, or auto loan, to name a few) as reported on the TransUnion consumer credit database. The underserved population has minimal credit participation, limited to a single type of credit product and no more than two open accounts of that type, and have been active in the credit market for at least two years.
This study specifically excluded new-to-credit consumers – those who have opened their first product within the past two years – from the underserved population, as many of those new-to-credit consumers become more fully credit active soon after opening their first product. The study sought to understand those consumers who remain unserved or underserved over a longer time period.
Two cohorts of consumers were studied, each over a two-year time period – the first during the pre-pandemic period beginning March 2018 through March 2020, and the second beginning in June 2019 and studied through the pandemic time period of June 2021, to determine if there were any pandemic-related shifts with consumer credit migration trends.
Global Market Sizing of the Credit Unserved and Underserved Populations
Number of unserved consumers
Percentage of adult population that is unserved
Number of underserved consumers
Percentage of adult population that is underserved
While some unserved (also called credit inactive) consumers may have traditional credit scores when they open their first credit product, many do not. This lack of a credit score and any history of credit activity is an impediment for these unserved consumers to get their first credit product, as many lenders are hesitant to extend credit to consumers without any credit history or score. For these traditionally unscorable consumers, they face a “chicken or egg” conundrum of how to get that first credit product when they lack a credit history.
“This reality underscores the importance of incorporating alternative data into the financial ecosystem so that fewer consumers find themselves as credit invisible. Once these consumers can be evaluated by financial institutions, lenders can better determine where there might be new opportunities for growth and how they can expand credit inclusion,” said Wise.
For more information and to learn more, please sign up for the webinar "Addressing Credit Needs of Underserved Consumers."
Once U.S. Underserved Consumers Become Credit Served, They are Likely to Apply for More Credit
Every year, a portion of the underserved consumer population – those with minimal credit activity – become more fully credit active by opening additional credit products, while many still remain in that underserved segment. To better understand how underserved consumers transitioned to becoming more fully credit active, the study looked at which credit products consumers had opened within the two-year period. For the purpose of the study, underserved consumers transitioned to served if they opened additional product types over the two-year study period – for example, when a previous credit card only consumer also opens an auto loan.
The most common first credit products held by underserved consumers in the United States were credit cards (44%), which was seen to an even greater degree in the Canadian market (84%). This mirrors broader trends that TransUnion has observed in these developed countries, where credit cards are the most common first product for consumers entering the credit market. This varied by country; however, as the study found that in emerging markets like Colombia, India and South Africa, the product types most commonly held by underserved consumers were microcredit, agricultural loans and clothing loans, respectively. In the United States, 90% of underserved consumers that migrated to credit served within the two-year period did so by opening a second product type. The most commonly opened second product types were credit card, private label cards and auto loans.
The study also found that consumers who migrated from underserved to served (opened at least one new product type) over the two-year period had more inquiries – applications for new credit – than consumers who remained underserved. While some of that higher inquiry activity was attributable to the fact that they opened new accounts, the overall higher level of inquiry activity by those consumers who migrated to the served segment implies that these consumers have a significantly higher demand for new credit, and that this demand is not necessarily being met by lenders.
“The number of new credit inquiries were materially higher for consumers that migrated to served compared to consumers who remained underserved. These consumers appear to want more credit, but they are not necessarily able to access the credit they want, potentially due to their limited credit history. This highlights a missed opportunity for lenders who are seeking to grow and add new customers. Many of these underserved consumers would likely be well-performing and profitable borrowers, but because of their limited credit history, lenders are reluctant to extend them credit. Incorporating alternative data on consumers into lending decisions could enable lenders to get a fuller picture of the financial capacity of underserved consumers and make credit available to more of them,” added Wise.
Unserved or Underserved? Survey Confirms Varying Levels of Credit Satisfaction
TransUnion also commissioned an online global survey[iii] of nearly 11,100 adults (ages 18 years and older) to gather sentiment from unserved and underserved consumers on the topic of credit. The countries studied included the United States, Brazil, Canada, Colombia, the Dominican Republic, and the Philippines. The findings revealed consumer beliefs, attitudes and experiences with credit that may be influencing current and future behaviors.
Depending upon the country, respondents cited they are interested in applying for more credit in 2022 to varying degrees. In the United States, for example, only 29% of unserved consumers – those without any credit product – plan on applying for credit, compared to 46% of underserved consumers. The reason for this differentiation may be due to the fact that it is typically easier for underserved consumers, who generally have at least one credit account, to secure credit than consumers who are completely credit inactive.
When comparing the consumer sentiment of unserved consumers with underserved consumers, there tends to be a pronounced difference in the level of satisfaction with their current amount of credit. In the U.S., 60% of underserved consumers were satisfied or extremely satisfied with their current amount of credit, while only 35% of unserved consumers, those with no credit currently, had the same level of satisfaction. Additionally, 26% of unserved consumers were not satisfied at all with their level of credit, while only 6% of underserved consumers expressed dissatisfaction. This potentially speaks to differences in awareness of the potential uses and benefits of credit between those with some limited credit activity and those with no credit at all.
“Promoting financial inclusion will start with gathering a better understanding of the different nuances between the unserved, underserved and served populations and what makes them tick. For example, what drives unserved consumers to apply for credit, and why underserved consumers may need a different credit product may vary greatly. As lenders are better able to meet the unique needs of these consumers and educate these unserved and underserved segments on ways they can build and improve their credit profiles, a larger percentage will become actively engaged in the credit system,” concluded Wise.
For more information and insights on the global TransUnion study, “Empowering Credit Inclusion: A Deeper Perspective on Credit Underserved and Unserved Consumers,” please download the report.
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®.
A leading presence in more than 30 countries across five continents, TransUnion provides solutions that help create economic opportunity, great experiences and personal empowerment for hundreds of millions of people.
[i] Unserved: Consumers that have never had an open traditional credit product, based on reported accounts on the TransUnion consumer credit database. To size the unserved, we started with the total adult population as reported by the United Nations. We then subtracted the underserved, new to credit, and served consumers. The remaining number is the unserved.
[ii] Underserved: Consumers with some, but limited, credit presence. Specifically, they have:
· Been active in the credit market for at least the past 2 years
· 0-2 currently open traditional credit accounts
· Only ever held 1 type of credit product
[iii] TransUnion’s online global survey included responses from 11,128 adults and was conducted between August 3, 2021 – January 5, 2022 by TransUnion in partnership with third-party research provider Qualtrics® Research-Services.