Findings from the newly released Q1 2024 Quarterly Credit Industry Insights Report from TransUnion reveal that the consumer credit market continues to show resiliency in the face of a challenging economic environment as consumers continue to turn to credit to help manage higher costs.
Despite interest rates remaining high relative to recent history, certain key credit card metrics have seen steady growth in recent years, including the total number of bankcards, average new bankcard account credit lines, and the total number of U.S. consumers who carry a bankcard balance.
As of Q1 2024, consumers held more than 543 million bank cards in their wallets, a growth of 20 million year-over-year (YoY) and more than 88 million from three years ago. More consumers are using their available credit line, as the number of consumers who carry a bankcard balance has seen steady growth as well, up 2.2% YoY. Average new account credit lines saw YoY growth, up 3.8% to $5,628, in part due to a greater proportion of originations among super prime, for whom new account credit lines tend to be higher.
While average new account credit lines saw YoY growth, total new account credit lines were down 2.6% due to a tightening origination environment.
Consumers have also increasingly turned to unsecured personal loans. Total unsecured personal loan balances grew 9% YoY to $245 billion in Q1 2024. Unsecured personal loans have also seen growth in the total number of consumers who hold at least one unsecured personal loan, showing an increase of 5% YoY, and 24% since Q1 2021.
“Consumers’ access to credit has grown significantly in recent years and will provide them with credit to tap into when needed,” said Michele Raneri, vice president and head of U.S. research and consulting at TransUnion. “Many of these consumers are choosing to take advantage of these products that can help them manage their rising monthly household expenses, despite the fact that these products may bring with them interest rates that are higher relative to recent history. For these consumers, the short-term pressure of inflation poses a more pressing problem to solve than the potential impact of higher interest rate credit, which includes higher monthly debt service payments.”
Delinquencies continue to rise across many credit products, with increases seen in credit cards, mortgages, and auto. However, a decrease was seen in unsecured personal loans, largely driven by a shift to lower-risk borrowers, with a YoY decline in borrower-level delinquency 60 days or more past due. While last quarter saw delinquencies increase, there is a slowing in the rise in credit card delinquency and a decline in unsecured personal loan delinquency.
“We have seen delinquencies tick up in recent quarters, which is certainly something lenders need to follow closely. At the same time, the consumer credit market remains resilient given the compounding of relatively high interest rates and persistent inflation,” said Raneri. “The prevailing hope is that as long as unemployment figures remain relatively low, serious delinquency rates may stabilize.”
Super prime drives bankcard originations amidst declines overall
Bankcard originations were down 6.3% YoY in Q4 2023. This represents two consecutive years of a fourth-quarter YoY decline in originations. At 19.3 million, the origination volume remains 2.3% above 2019 levels, led by super prime, which saw its highest origination volume quarter since 2005. All other risk tiers saw a YoY decline in originations.
Total balances increased by 11.3% YoY and remained above $1 trillion for the second consecutive quarter. The prime and below-risk segments have held the majority of balances for the past three quarters. Average debt per borrower increased by 8.5% YoY to $6,218. Borrower-level 90+ DPD increased by 29bps YoY to 2.55%, while vintage performance deteriorated across all risk tiers.
“As consumers manage expenses amidst stubbornly high inflation, demand for credit continues to be strong despite the currently relatively high interest rates,” senior vice president and credit card business leader at TransUnion Paul Siegfried said. “Evidence for this can be seen in the significant bankcard balance growth we are seeing across risk tiers. Delinquencies have increased, however, the growth trend has slowed. Nevertheless, they continue to be worth careful monitoring moving forward. ”
Total unsecured personal loan balances tick up while subprime delinquencies decline
Total unsecured personal loan balances grew 9% YoY in Q1 2024. Balance growth was led by super prime, the only tier with double-digit growth. The average account balance increased by nearly 5% YoY to $8,737. Average balance growth was led by subprime, followed by superprime.
Balance per consumer also grew by nearly 5% YoY to $11,829. Unsecured personal loan originations were down, at five million for Q4 2023. Contraction in originations was seen across all risk tiers with the exception of super prime. Super prime originations grew by 12.6% YoY.
Borrower-level 60+ DPD delinquencies fell YoY in Q1 2024, down to 3.75%. However, only subprime declined while all other risk tiers saw increases YoY. On a vintage basis, the delinquency rate for Q1 2023 originations through January 2024 is much lower than for originations for Q1 2022 originations over the same performance period but remains elevated over Q1 2021 originations.
“Total balance growth has slowed slightly after three years, with the 9% YoY increase representing the first quarter since Q4 2021 that saw only a single-digit increase in total balances,” Liz Pagel, senior vice president of consumer lending at TransUnion, said. “Unsecured personal loan originations were down slightly YoY as lenders are maintaining tight underwriting standards, focusing on lower-risk borrowers. These tighter underwriting standards in recent quarters likely played a role in the YoY decline in overall delinquencies. The originations decline was most pronounced in the subprime segment, which fell nearly 5% YoY.”
Purchase share of mortgage originations hits a record as interest rates remain high
Q4 2023 origination volumes were down 11% YoY, with originations continuing to be driven by purchase originations. Mortgage rates set more than a two-decade high during Q4 2023. While overall volumes were down YoY, FHA mortgage originations were up 9% YoY in Q4 2023, the first loan type to register a YoY increase in two years.
Delinquencies continue to trend up and are worth continuing to monitor. Sixty-plus DPD consumer-level delinquencies were up to 1.14% in Q1 2024. However, delinquencies still remain below pre-pandemic rates.
The 2022 resurgence in home equity lending slowed somewhat in Q4 2023, with HELOCs down 17% and HELOANs down 4% YoY. GenX and Baby Boomers have the highest share of HELOC originations at 39% and 30%, respectively, in Q4 2023. These same generational groups lead the way with 35% and 30% of HELOANs, respectively, during the quarter.
“Stubbornly high interest rates continue to suppress the mortgage market, keeping many would-be home-buyers on the sidelines until rates begin dropping,” Satyan Merchant, senior vice president, automotive and mortgage business leader at TransUnion, said. “There remains hope that rates will decline over the course of 2024; however, that may happen later than previously anticipated in light of the most recent inflation report. While originations remain down YoY, the rates of decline continue to decelerate, which may be a sign that some consumers are simply tired of waiting. Rising delinquencies are worth paying attention to, though they continue to remain below pre-pandemic levels.”
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