Amidst Stubbornly High Inflation, Consumers Continue to Turn to Credit Cards, Home Equity to Maintain Stability

CHICAGO, Feb. 01, 2023 (GLOBE NEWSWIRE) -- Amidst an economic environment of rising interest rates and high inflation, the fourth quarter of 2022 saw consumers continuing to look to credit as a means to help stave off these financial pressures. TransUnion’s (NYSE: TRU) newly released Q4 2022 Quarterly Credit Industry Insights Report (CIIR) shows that whether it’s Gen Z consumers opening credit cards, homeowners taking out home equity lines of credit (HELOCs) or consumers continuing to turn to unsecured personal loans, more and more borrowers are looking to a range of credit products to cope with the financial pressures of today and better position themselves for the evolving financial landscape.

“Whether it’s shopping for a new car or buying eggs in the grocery store, consumers continue to be impacted in ways big and small by both high inflation and the interest rate hikes implemented by the Federal Reserve, which we anticipate may continue for at least a few more months,” said Michele Raneri, vice president of U.S. research and consulting at TransUnion. “If more moderated rate hikes continue, it would be a good sign that the increases have been working, and that some relief from high inflation may be on the horizon. Until then, we fully expect consumers to continue to look to credit products such as credit cards, HELOCs and unsecured personal loans to help make ends meet and put themselves in stronger financial standing moving forward.”

An example of increased credit usage: credit card balances continued to grow, reaching record levels at the end of 2022. Bankcard originations were also up year-over-year (YoY) in Q3 2022 (the most recent originations data available), from 20.1 million in Q3 2021 to 21.6 million. Gen Z consumers, in particular, increasingly continued to turn to bankcards, showing YoY growth in both balances (up 64% YoY in Q4 2022) and originations (up 18.8% YoY in Q3 2022). Somewhat concerning is an upward trend in credit card delinquencies in both bankcard and private-label; however, context is required. Delinquencies for bankcards in Q4 2022 are still hovering around pre-pandemic levels observed in 2019 while private label card delinquencies remain below pre-pandemic levels.

While higher interest rates dampened new and refinance mortgage originations in Q3 2022, homeowners continued eagerly tapping into their record stores of home equity to help in consolidating their high interest debt. In fact, the most recent origination figures from Q3 2022 show that HELOCs and home equity loans (HELOANs) continued to be a popular option in Q3 2022. Consumers are also still seeking out unsecured personal loans as a way to pay off high interest debt and, despite growing delinquency rates among borrowers, lenders remain eager to lend, albeit seemingly with adjustments in their lending criteria that includes a gradual shift away from below prime borrowers.

Consumers Turned to Credit Cards, HELOCs and Unsecured Personal Loans in 2022

*Note: Originations are viewed one quarter in arrears to account for reporting lag.

To learn more about the latest consumer credit trends, register for the Q4 2022 Quarterly Credit Industry Insights Report Webinar. Read on for more specific insights about credit cards, personal loans, auto loans and mortgages.

With Gen Z increasingly turning to bankcards, balances once again reach record highs

Q4 2022 CIIR Credit Card Summary

Bankcard balances increased to a new record high in Q4 2022 at $931 billion, representing 18.5% growth YoY. Average bankcard account balances remain on an upward trend in 2022 with quarter-over-quarter (QoQ) growth led by subprime (19.0%) and near prime (13.8%). Total private label balances increased to $131 billion in Q4 2022, which represents YoY growth of 8%. Subprime private label total balances grew 33% YoY as subprime share of balances has increased. A new record was set for bankcard originations, increasing to 21.6 million in Q3 2022, which represents growth of 7.4% YoY, and which has resulted in more consumers, 202 million, having access to credit cards. Q3 2022 saw another quarter in which Gen Z saw significant increases in their rate of bankcard originations, up 18.8% YoY. Total bankcard credit lines grew 9.2% YoY over the course of 2022, reaching $4.3 trillion in Q4 2022, while total utilization grew 8.2% YoY to 21.5%, the highest utilization in past two years. Total private label credit lines saw positive growth in Q4 2022, with the total private label utilization hitting a record high this quarter. Bankcards saw an increase in delinquencies, with the 90+ day delinquency rate increasing to 2.26% in Q4 2022, which is 0.07% higher than Q4 2019.

Instant Analysis

“Bankcard balances and originations continue to climb as consumers seek ways to cope with inflation, and this is particularly the case among Gen Z consumers, who have seen growth of 19% in originations YoY and 64% in balances over the same period. It’s important to view this growth in delinquency in the context of where we stood pre-pandemic. In fact, despite recent increases, bankcard delinquencies have only just reached the level they were at prior to the pandemic, while private label card delinquencies remain 17% lower than their pre-pandemic levels. The use of tools such as trended data can help lenders find the right consumers to whom to extend and manage credit despite the challenges of the current environment.”

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

Q4 2022 Credit Card Trends

*Note: Originations are viewed one quarter in arrears to account for reporting lag.

Click here to view findings from our recent study, Empowering Credit Inclusion: A Deeper Perspective on New-to-Credit Consumers.

As unsecured personal loan balances reach record $222B, originations return to pre-pandemic levels

Q4 2022 CIIR Personal Loan Summary

Despite the rate of growth slowing in the second half of 2022, unsecured personal loan balances climbed to a record $222 billion in Q4 2022. This was driven by record high originations in the first half of the year. While balances grew across all risk tiers, below-prime tiers led the way with YoY growth of 60.4% for subprime and 38.7% for near prime. Total new account balances grew 25.8% YoY to reach $38.3 billion. A record 22.5 million consumers currently have at least one unsecured personal loan, a 12.9% YoY increase. Originations in Q3 2022 (viewed one quarter in arrears) were at 5.6 million, which represented YoY growth of 9.2%, similar to the pre-pandemic (Q3 2019) growth rate of 9.7%, but far behind the growth seen in the first half of the year. Evidence of a lender pull-back is beginning to show in Q3 2022 as originations shrank 6.6% QoQ despite Q3 typically being stronger than Q2. Q4 2022 is expected to see further pull-back. Delinquencies once again increased, with serious borrower delinquency (60+ days past due) increasing for the sixth consecutive quarter in Q4 2022 to 4.14% -- the highest level seen since Q4 2011. This represents a 38% increase YoY. The increase is in part due to the unprecedented growth seen in the first half of the year, which caused lenders to compete and grow business in riskier borrower tiers. Subprime delinquencies rose 25% YoY in contrast to super prime, which fell 21% YoY.

Instant Analysis

“Balances in unsecured personal loans grew an impressive 32% in 2023, despite slower growth in the back half of the year. Unprecedented origination growth and buy box expansion began in late 2021 and continued through Q2 2022. In Q3 2022, lenders began to slow their growth and shift their focus to lower-risk borrowers. On a percentage basis, personal loan originations for subprime and near prime borrowers increased in the single digits YoY whereas super prime borrowers experienced a 33% rise in the third quarter. Some of the growth from earlier in the year is leading to rising delinquency rates among below prime consumers in recent vintages, which is likely to continue. Against this backdrop, lenders are likely to continue adjusting lending criteria to grow slowly in the upcoming quarter.”

- Liz Pagel, senior vice president of consumer lending at TransUnion

Q4 2022 Unsecured Personal Loan Trends

*Note: Originations are viewed one quarter in arrears to account for reporting lag.

Click here to view our recent study, Where Will Growth in Mortgage Originations Come From?

HELOCs and HELOANs continue to grow as homeowners tap into record levels of home equity

Q4 2022 CIIR Mortgage Loan Summary

Mortgage originations continued their slowdown in the face of higher interest rates, with the most recent quarter of data, Q3 2022, showing a 56% decrease YoY in overall originations, down to 1.5M from 3.4M in Q3 2021. For the sixth consecutive quarter, new purchases made up the bulk of total origination volume in Q3 2022, up 28 percentage points from 55% in Q3 2021 to 83%, outnumbering refinance five to one for the quarter with volumes on par with pre-pandemic levels (1.2M). Overall refinance originations fell by 84% YoY to 250,000; the lowest on record – driven primarily by the dramatic decrease of rate-and-term refinances, down by 95% YoY to 40,000. Total mortgage balances reached a record level in Q4 2022 of $11.7 trillion, 9% higher than the same period last year. The annual growth rate of tappable homeowner equity continues to increase, up by 18% YoY in Q3 2022, reaching an all-time high of $20.2 trillion. This represents an increase of $600 billion from Q2 2022. HELOCs were up 41% YoY in Q3 2022, while Home Equity loan originations grew 47% YoY in 2022, representing the most Home Equity loan originations on record since 2010. Delinquencies ticked up, with borrower delinquency (60+ days past due) growing 17% YoY to 0.96% in Q4 2022. While delinquency levels remain low, this marks the third consecutive quarter of increase.

Instant Analysis

“HELOCs and Home Equity Loans continue to grow at unprecedented levels as homeowners increasingly take advantage of the record levels of tappable home equity they have built in their homes. The main reasons why homeowners utilize the equity available to them is to consolidate debt, home improvement and big ticket purchases. Lenders who will benefit from this trend are those who have the ability to identify and reach homeowners who have equity available to tap and who also, either carry high interest rate debt that can be consolidated or own older homes that may warrant improvements. Leveraging data and analytics from companies like TransUnion that have all this data could result in realized benefits for homeowners (through reduced monthly costs) as well as lenders (through cross-sell conversion and portfolio growth).”  

- Joe Mellman, senior vice president and mortgage business leader at TransUnion

Q4 2022 Mortgage Trends

* Originations are viewed one quarter in arrears to account for reporting lag.

Despite lower auto prices, higher interest rates driving higher monthly auto payments

Q4 2022 CIIR Auto Loan Summary

Originations in Q3 2022 were down 9.8% YoY to 6.6 million, representing the lowest seasonal volume since 2013. This has represented the second consecutive year that Q3, which typically represents the highest volume quarter in-year, has trailed Q2. However, in a sign that post-pandemic new vehicle supply shortages may be easing – for the first time since 2021 – new vehicles comprised more than 40% of vehicles financed in Q4 2022. Leasing, however, continues to lag. In Q4, leasing represented 20.9% of all new vehicle registrations, down from 24.7% in Q4 2021. Despite slight decreases in average amounts financed for both new and used cars, monthly payments continued to grow in Q4 2022, albeit more slowly than one year prior. Point-in-time serious account delinquency (60+ days past due) rates rose 13bps quarter over quarter to 1.78% in Q4 2022, which is slightly higher than the typical seasonal increase of ~7bps from Q3 to Q4. While new vintage performance shows stable performance, we are seeing some deterioration on used vehicle vintages when comparing to pre-pandemic cohorts.

Instant Analysis

“The fact that new vehicles made up more than 40% of all cars financed this quarter for the first time since the end of 2021 is a sign that the new vehicle inventories are improving from significant supply shortages earlier in the year. However, despite a decrease in the average amount financed for both used and new cars, inflation and rising interest rates continue to impact consumer affordability, with monthly payments for both new and used vehicles continuing to rise, albeit more slowly. While point-in-time delinquency rates continue to rise, context is important when reviewing auto delinquency figures. Recent vintages show deterioration for used vehicle financing while new financing performance remains stable.”

- Satyan Merchant, senior vice president and automotive business leader at TransUnion

Q4 2022 Auto Loan Trends

*Note: Originations are viewed one quarter in arrears to account for reporting lag.
**Data from S&P Global MobilityAutoCreditInsight, Q4 2022 data only for months of October & December
Click here to view findings from our recent study, Trends in Auto Financing: The State of Leasing.

Credit Industry Indicator ticks down, driven by higher delinquencies and slowing credit demand

Q4 2022 Credit Industry Indicator Summary

TransUnion’s Credit Industry Indicator (CII) fell to 110 in Q4 2022, a YoY drop of 5 points from the Q4 2021 reading and a sequential drop of 10 points from the previous quarter level in Q3 2022. The CII is a quarterly measure of depersonalized and aggregated consumer credit health trends that summarizes movements in credit demand, credit supply, consumer credit behaviors and credit performance metrics over time into a single indicator. Examples of data elements categorized into these four pillars include: new product openings, consumer credit scores, outstanding balances, payment behaviors, and 100+ other variables. Increases in the CII level indicate overall positive trends in the health of the credit market.

The Q4 2022 decrease in the CII was largely driven by cooling demand for new credit, especially mortgages, and rising delinquencies across many product categories, particularly unsecured credit products, from the record lows seen in 2021. These factors offset the positive developments seen in the credit market, including continued growth in originations of new credit cards and unsecured personal loans, higher credit participation (number of consumers with access to credit) and overall balance growth across products. Despite the recent quarter dip, the CII remains well above levels seen at the height of the pandemic in 2020 and early 2021.

Instant Analysis

“While a single indicator number can’t fully reflect all the complexities of the consumer credit market, the CII was developed to create an overall barometer of how the market is trending. The dip in the most recent quarter indicates that the market is starting to see some headwinds, particularly around delinquencies. However, the continued supply of new credit to consumers in recent quarters, especially at a time when many consumers are feeling the effects of high inflation levels, is one of several factors showing that, overall, the consumer credit market remains healthy.”

- Charlie Wise, senior vice president and head of global research and consulting at TransUnion

For more information about the report, please register for the Q4 2022 Credit Industry Insight Report webinar.

About TransUnion (NYSE: TRU)
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