Sign of the Times: Americans’ Credit Card Popularity Soars

Credit card holders–and their outstanding balances–have jumped substantially in the past year, said TransUnion, Chicago.

The company’s Q2 Industry Insights Report said a record 133 million American consumers now possess at least one credit card with a balance. TransUnion said 10 million new credit card users came on board in the past year alone.

The report also noted total balances increased to $662 billion as of the second quarter, up 6 percent from a year ago. Credit card balance growth has been driven primarily by originations–both from existing customers and new entrants opening their first credit card. Younger millennials (consumers ages 20-29) comprised 52 percent of those opening their first credit card during the second quarter.

“Credit card usage continues to increase at levels in line with consumer confidence and likely due to a relatively strong employment market,” said Paul Siegfried, senior vice president and TransUnion’s credit card line of business leader. “Consumers tend to apply for more credit cards and use them more frequently when they are gainfully employed.”

The Labor Department reported the U.S. unemployment rate dropped to 4.9 percent in June from 5.3 percent a year ago, nearly half of what it was in June 2009 (9.5 percent)–the month concluding the “official” end to the Great Recession.

Transunion reported in the past year, non-prime consumers (VantageScore score of 660 or below) have been building up their balances most, while those in the prime and above risk tiers (661 or above) are more actively deleveraging credit card balances. Prime and above consumers made up 83 percent of consumers whose balances declined in the last year. Conversely, they represented 71 percent of consumers who built up their balances in the last year.

“Prime and above consumers represent nearly 79 percent of all credit card users, so their credit behavior is especially significant for the industry,” Siegfried said. “We have seen clear signs of deleveraging in this segment. At the same time, increasingly more non-prime consumers are getting access to card credit, usually at lower credit limits. Together, these trends are causing slower growth of balances relative to accounts.”

Delinquencies are also on the rise, however: TransUnion said the serious delinquency rate per borrower (90+ days delinquent) stood at 1.29 percent as of the second quarter, up from 1.20 percent a year ago. “While delinquency has increased, we believe it is in line with the increased share of non-prime originations over the past year,” Siegfried said. “As well, delinquency rates remain low relative to historical norms.”

And Nidhi Verma, senior director of research and consulting in TransUnion’s financial services business unit, believed there are no reasons for concern. The report “still points to a healthy consumer credit market,” Verma said. “While more subprime consumers are receiving loans and their balances are rising, we do not see alarming delinquency levels. Some lenders may be taking on more risk, but it’s important to highlight that they are doing so with their risk thresholds in mind.”

TransUnion reported the serious mortgage delinquency rate (60 or more days past due) declined to 2.30 percent, down more than 18 percent from a year ago (2.82 percent). Mortgage originations dropped from 1.48 million in first quarter 2015 to 1.46 million in in the first quarter this year, snapping a five-quarter streak of continuous year-over-year growth.

“The mortgage sector continues to perform well, and we expect originations to be more robust when the full Q2 numbers become available,” said Joe Mellman, vice president and TransUnion’s mortgage line of business. “This is mostly due to the unusually low interest rates available as a result of Brexit and other macroeconomic factors. While the mortgage sector performs well, we continue to pay special attention to states impacted by the energy crisis. States with economies heavily reliant on oil and energy are bucking the trend and experiencing higher delinquency rates.”

TransUnion data show only three states–North Dakota (+10.8 percent), Wyoming (+9.6 percent) and West Virginia (+0.5 percent)–experienced yearly delinquency increases.

The report said average mortgage debt per borrower continued to grow, rising 2.3 percent in the last year to $192,749, marking the fifth consecutive quarter of mortgage debt growth and is largely due to the overall increase in home prices.

TransUnion also reported both total unsecured personal loan balances and average balances reached record highs during the second quarter, though the serious delinquency rate reached its lowest post-recession level. Total personal loan balances grew by 26.2 percent to $96 billion in the second quarter, up $20 billion from a year ago. Average debt per personal loan borrower rose by 9.1 percent from $7,102 a year ago to $7,745 in the second quarter.

Nearly 15 million consumers had a personal loan balance in the second quarter, an increase of 1.73 million consumers from 13.06 million a year ago. Only 10.33 million consumers had a personal loan in second quarter 2013, reflecting increased growth and interest in this loan product in recent years. In addition, the unsecured personal loan delinquency rate remained steady in the second quarter at 3.30 percent, a slight decline from 3.32 percent a year ago.