TransUnion: Credit Card, Unsecured Personal Loan Balances at or Near Record Levels

TransUnion, Chicago, said consumers are increasingly turning to credit to manage their household budgets in the current economic environment, leading to record- or near-record high balances in credit cards and unsecured loans.

The company’s Quarterly Credit Industry Insights Report also said mortgage balances remain at record highs while originations near record lows.

“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,” said Michele Raneri, vice president of U.S. research and consulting with TransUnion. “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.”

The report said while down slightly quarter-over-quarter at -1.5%, credit card balances remain near record highs at $917 billion, which represents nearly a year-over-year increase of nearly 20%. It is a similar story when looking at unsecured personal loans, where balances once again reached record highs in the first quarter. All told, balances for unsecured personal loans were up 26.3% year over year in the first quarter to a record-high $225 billion.

The report noted, however, this represented the second consecutive quarter of decelerating year over year growth rates, which may be a sign that lenders are showing more scrutiny in making underwriting decisions. All risk tiers demonstrated year over year increases, with each tier seeing double-digit balance growth. Subprime led with a 40% increase in balances, 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.

The report said while total mortgage balances reached a record level of $11.8 trillion in the first quarter, the slowdown in mortgage originations continued to accelerate, down from 2.9 million in Q4 2021 to 1 million in Q4 2022, representing a 65% year over year drop – the largest decline since TransUnion has been tracking.

Within originations, purchases made up 86% of the volume in the fourth quarter, with 900,000 originations (down by 45% year over year from 1.6 million in Q4 2021). Refinance originations fell by 89% year over year from 1.3 million to 143,000, the lowest level to date, driven by the dramatic decrease of rate and term refinances, which were down by 96% year over year from 588,000 in Q4 2021 to 24,000 in Q4 2022, and cash-out refinance originations, which were down by 83% year overyear from 716,000 to 120,000.

Conversely, the report said HELOC originations rose by 7% year over year to reach 299,000 in Q4 2022, while home equity loan originations grew 31% to 264,000. Mortgage delinquencies ticked up year over year, with account-level delinquency (60+ days past due) growing 12% to 0.98% in the first quarter, though still remaining at very low levels historically.

(EDITOR’S NOTE: The Mortgage Bankers Association will release its First Quarter National Delinquency Survey at 10:00 a.m. ET this morning, with MBA Vice President of Industry Analysis Marina Walsh, CMB, providing commentary and analysis.)

“The relatively higher interest rate environment has depressed mortgage refinancing in particular,” said Joe Mellman, TransUnion senior vice president and mortgage business leader. “Interestingly, cash-out refinance hasn’t been as impacted as rate and term refinance. This, coupled with the increases observed in HELOC and home equity loan originations, indicates that homeowners are still interested in tapping their home equity, even at higher interest rates.”

Mellman said it is also encouraging that purchase originations remain near the lower end of the normal activity range, indicating that consumers are continuing to purchase homes even in this higher-rate environment. “While delinquency levels remain below historical norms, this marks the fourth consecutive quarter of increase– a trend worthy of continued monitoring in 2023 as macroeconomic volatility and increased cost-of-living may be starting to affect delinquencies,” he said.