TransUnion Report: Consumers Increasingly Turning to Credit, Unsecured Loans to Manage Household Budgets

The newly released Q1 2023 Quarterly Credit Industry Insights Report (CIIR) from TransUnion (NYSE: TRU) shows that in this current economic climate in which inflation remains at elevated levels and interest rates have risen sharply, consumers “are increasingly turning to credit to manage their household budgets, leading to record- or near-record high balances in credit cards and unsecured loans.”

Michele Raneri, vice president of U.S. research and consulting at TransUnion, said:

“We have seen record levels of originations in credit cards and unsecured personal loans since mid-2021 as strong credit positions have allowed consumers access to additional products. As inflation rose to near 40-year high levels, many consumers have used credit to help manage their budgets, leading to record- or near-record high balances. It remains to be seen whether these balances will continue to grow in the near-term, or if growth will slow as consumers moderate their pace of borrowing and if lenders more closely scrutinize consumers and potential risk when determining to whom they lend moving forward.”

While down “slightly quarter-over-quarter (QoQ) at -1.5%, credit card balances remain near record highs at $917 billion, which represents a year-over-year (YoY) increase of almost 20%.”

Credit card balances typically “experience a seasonal drop in the first quarter as consumers use tax refunds to pay down debt levels.” Average balance per consumer “remains elevated compared to the previous year, with 14.4% YoY growth.”

It is a similar story when “looking at unsecured personal loans, where balances once again reached record highs in Q1 2023.”

All told, balances for unsecured personal loans “were up 26.3% YoY in Q1 2023 to a new high of $225 billion.”

It’s worth noting, however, “that this represented the second consecutive quarter of decelerating YoY growth rates, which may be a sign that lenders are showing more scrutiny in making underwriting decisions.”

All risk tiers demonstrated YoY increases, “with each tier seeing double-digit balance growth. Subprime led with a 40% increase in balances YoY, followed by super prime at 34%. Prime saw the lowest growth at just under 20%.”

The average balance per consumer is “the highest it has been on record (since 2005) at $11,281.”

As noted in the update, bankcard balances “remained near record highs in Q1 2023, landing at $917 billion.” That reportedly “represents YoY growth of 19.2%.”

Balances were “down 1.5% QoQ, experiencing the seasonal drop normally seen each year in the first quarter.”

Subprime share of consumers “with a balance declined to 10.2%, down from 10.9% the previous quarter, ending a trend of seven consecutive quarters of growth for the subprime segment.”

In contrast, the share of super prime tier consumers “with a balance increased to 41.8%, up from 40.6% a quarter ago.”

Millennials continued “to see their share of balances grow, up to 28.6% in Q1 2023 as compared to 26.5% one year prior.”

Total credit lines “increased 9.7% and reached $4.4 trillion in Q1 2023, an increase of $391 billion YoY.” High growth in credit lines was “observed across the risk spectrum, but 60% of the increase was driven by super prime borrowers. 2022 Q4 new account originations were 20.64 million accounts, representing a decline of -3.9% YoY and -4.3% QoQ.”

Most of the impact was “driven by a decline in subprime originations of -19% YoY.” Bankcard 90+ DPD consumer-level delinquency “remained flat QoQ at 2.26% but remains up significantly from levels seen in the first quarter of 2022.”

Paul Siegfried, senior vice president and credit card business leader at TransUnion, said:

“Bankcard balances continued to grow as borrowers gained greater access to credit and subsequently leveraged that available credit. While bankcard originations were down slightly YoY and QoQ, they still topped 20 million for the fifth time over the course of the past six quarters. 90+ DPD delinquency rates by accounts were relatively flat among all risk tiers with the exception being subprime, which were at 12.42%, up from 9.44% a year ago.”

For more details on this update, check here.

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