Consumer Credit Origination, Balance and Delinquency Trends: Q1 2018

Matt Komos
Blog Post06/01/2018

At the beginning of 2018, more consumers continued to gain access to credit. Delinquency rates rose at a slow pace and remained below the levels observed immediately after the recession.

According to TransUnion’s Industry Insights Report, powered by PramaSM analytics, credit card usage continued its upward trajectory in Q1 2018, with more than 416 million cards issued and nearly 175 million consumers with access to credit cards.
In a recent webinar, we explored changes in total balances, average debt levels, originations and delinquency by line of business.

Changes between Q1 2018 and Q1 2017 for Key Consumer Credit Metrics

Credit ProductChange in Number of AccountsChange in Serious Delinquency RatesChange in Average Debt Per BorrowerChange in Subprime Borrowers with a Balance
Auto + 4.4% + 2 bps + $195 + 0.9%
Credit Card + 2.6% + 11 bps + $140 + 3.3%
Mortgage + 0.7% - 30 bps + $5,699 - 4.8%
Personal Loans + 13.2% - 21 bps + $383 + 7.8%

*Note that bps = basis points; 1 bp = 0.01%. Serious delinquency is defined here as borrower delinquency rates of 60 or more days past due (60+ DPD) for all credit products except credit cards, for which 90+ DPD is used.

Consumer Credit Trends in the Credit Card Sector: Q1 2018
Credit card delinquency rates are rising, but card issuers have been relatively conservative over the last five quarters. Additionally, lenders are issuing lower credit limits to consumers. Here are three key findings about credit cards from the Q1 2018 Industry Insights Report:

  • Serious credit card delinquency rates increased in Q1 2018 to 1.78%, though it remains below the 10-year first quarter average of 1.91%.
  • The average card debt per borrower also rose, up 2.63% to $5,472 in Q1 2018 from $5,332 in Q1 2017.
  • The number of credit card accounts rose 2.6% in the last year to 416.5 million in Q1 2018, up from 405.8 million in Q1 2017. We also observed positive origination growth of new credit cards for the first time in five quarters.

What is driving these changes in the credit card market?
It’s a promising sign for the economy that more consumers have access to credit. Though delinquency rates are certainly rising, credit card issuers have been relatively conservative over the last five quarters, issuing more credit to lower-risk consumers than higher-risk consumers. Additionally, the credit limits they are extending to consumers in most risk tiers are generally lower than prior years.

Consumer Credit Trends in the Auto Sector: Q1 2018
TransUnion’s Industry Insights Report found that tighter underwriting and improvements in the oil states appear to be positively impacting serious auto loan delinquency rates per borrower. Here are three trends we observed about auto loans:

  • The serious delinquency rate stayed relatively flat at 1.32% in Q1 2018, after growing from 1.16% in Q1 2016 to 1.30% in Q1 2017.
  • While total auto balances rose 5.2% to $1.183 trillion, this marked the lowest annual growth rate since Q1 2012. 
  • Overall originations declined 1.5% in Q4 2017*. This marked the sixth consecutive quarter of yearly declines, though the smallest such decrease in 2017.

What is driving these changes in the auto loan market?
The stabilization in the auto delinquency rate was likely due to shifts in the makeup of new auto loan borrowers and continued improvements in oil states. The origination mix continues to shift toward lower risk, with super prime and prime plus taking 1.8 points of share from prime, near prime and subprime on an annual basis. Finally, we believe the slowdown in auto loan balance growth is largely due to the decline in originations, as lenders continue to tighten their underwriting requirements and rising interest rates put a slight damper on demand.

Consumer Credit Trends in the Mortgage Sector: Q1 2018
The mortgage market continued to perform well at the beginning of 2018. Here are three changes in the mortgage market in Q1 2018:

  • Year-over-year mortgage delinquency rates have now dropped 19 straight quarters since Q3 2013, declining to 1.74% in Q1 2018.
  • While balances rose in aggregate for the year, average new mortgage loan balances declined from $235,361 in Q4 2016 to $229,538 in Q4 2017, likely a result of declining refinancing activity and a lower share of super prime loans.
  • That shift in new origination mix pushed subprime and near prime originations to 16.0% in Q4 2017* from 14.4% in Q4 2016.

What is driving these changes in the mortgage market?
Borrowers continue to perform well, and it’s encouraging that balances continue to increase as new purchase originations outpace paydowns. As time passes from the housing bubble, non-prime borrowers may continue to see their access to mortgage credit open up, as lenders have relaxed lending standards somewhat since 2010.

Consumer Credit Trends in the Personal Loan Sector: Q1 2018
The popularity of unsecured personal loans continued in Q1 2018, with the number of outstanding loans rising to 19.2 million from 16.9 million in the first quarter of the previous year. Total balances rose to $120 billion from $102 billion in that same timeframe. Here are trends in the personal loan market from the Q1 2018 Industry Insights Report:

  • Personal loan originations increased to 4.6 million in Q4 2017, exceeding the prior post-recession high of 4.1 million originations in Q4 2015. 
  • Even as more personal loans are issued, loan performance remains strong as the delinquency rate declined to 3.51% in Q1 2018 from 3.72% in Q1 2017. 
  • Average debt per borrower for unsecured loans also has risen to $7,986 in Q1 2018, an increase of nearly $300 from the previous year.

What is driving these changes in the personal loan market?
The acceleration in the number of loans offered to consumers is a result of low unemployment and a favorable regulatory environment. Online short-term lenders now feel that they can enter this space, and more traditional lenders have been doing so for the last few quarters.

The increased competition bodes well for consumers, as they will have more options available to them in the consumer lending market. At the same time, lenders should keep an eye on vintage loan performance.

Financial institutions can use these consumer credit trends in originations, balances and delinquencies to guide their strategies. To hear more about these trends, view our TransUnion Q1 2018 Industry Insights Webinar.

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

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