Credit Cards Are Surging Thanks to Gen Z

The just-released Q3 2021 Quarterly Credit Industry Insights Report (CIIR) reveals the auto, mortgage and personal loan industries all showed renewed signs of strength, along with a resurgence in the credit card industry — largely due to Gen Z.

While card issuers had pulled back and tightened new card volume during the pandemic, that trend has shifted: Credit card originations have nearly doubled, increasing from 8.6 million in Q2 2020 to a record 19.3 million in Q2 2021, with Gen Z’s share of originations increasing to 14.2%, up from 13.3% last year and 9.5% two years prior.

Consumer spending is also up, particularly among younger generations. In Q3 2021, the average per consumer balance for Gen Z increased 13.9% YoY, marking the second consecutive quarter of growth. Millennials also showed average balance growth per consumer with a 1.8% YoY increase.

Gen Z Leading Growth in Share of Credit Card Originations

“As the economy continues to show signs of recovery, card issuers are ramping up for growth and bringing younger consumers into the fold,” said Paul Siegfried, Senior Vice President and Credit Card Business Leader at TransUnion.

For more information about the report, please register for the Q3 2021 Quarterly Credit Industry Insights Report webinar. Read on for more specific insights about credit cards, personal loans, auto loans and mortgages.

Consumer Credit Trends in the Credit Card Sector: Q3 2021

The credit card market saw a record number of originations and the rebuilding of bankcard balances. Consumers with access to credit hit an all-time high of 194.3 million.

• Originations grew 17.2% YoY to 19.3 million originations, much of this attributed to non-prime consumers
• Despite rapid growth, consumer performance remained strong — with delinquencies declining to a low of 1.13% (90+DPD) in Q3 2021 from 1.23% over the same period last year
• Following five straight quarters of declines, total outstanding balances grew 0.5% YoY to $727 billion and are expected to increase as spending remains high
• Total credit lines also notched an all-time high at $3.9 trillion (an increase of 3.6% YoY), with growth observed in the prime and above risk segments

Our view: Lenders and consumers came roaring back to the credit card market — with record originations and expanding credit lines — while delinquencies stayed at historic lows. With continued balance growth and the winding down of remaining hardship programs, we expect a slow rise in delinquency. In the next quarter, the uncertainty surrounding supply chain issues could slow origination growth during the holiday season.

Q3 2021 Credit Card Trends 

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

Consumer Credit Trends in the Personal Loan Sector: Q3 2021

The pandemic dramatically drove down unsecured personal loan originations, but in Q3, originations trended toward pre-pandemic levels, growing nearly 70% YoY.

• The 4.4 million originations observed in Q2 2021 trails the 4.8 million from Q2 2019, but the risk distribution of consumers is returning to non-prime lending
• New balance growth has also helped drive total balances to $156 billion, nearly recovering to the Q1 2020 high of $159 billion
• Account level delinquencies hit another record low of 1.52% at 90+ days past due despite an increase in below prime balances and decreasing forbearance programs

Our view: The personal loan market has shown a solid return to lending, and lenders are recalibrating growth strategies and reviving below prime risk segments. As the economy continues to normalize, we expect this growth trajectory to continue over the next quarter.

Q3 2021 Unsecured Personal Loan Trends 

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

Consumer Credit Trends in the Auto Sector: Q3 2021

Throughout 2021, the auto finance market has continued to show signs of strength with both origination growth and strong performance observed across all risk tiers.

• Originations grew to 8.2 million in Q2 2021, a 27.4% increase over the same period last year and a 12.8% increase over Q2 2019
• YoY subprime origination growth still lags other risk tiers due to affordability and employment challenges
• Serious delinquency rates have declined, with the 60+ DPD rate showing improvement and reaching 1.38%

Our view: While origination growth rebounded to a healthy level this past quarter, external factors, such as the uncertainty surrounding semiconductor chip shortages and supply chain issues, will continue to impact new vehicle inventory and increase prices. We anticipate this will affect vehicle sales through the remainder of the year (and possibly into 2022) despite growing consumer demand. Additionally, as accounts roll off hardship programs, we expect a slight uptick in delinquency.

Q3 2021 Auto Loan Trends 

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

Consumer Credit Trends in the Mortgage Sector: Q3 2021

Following several quarters of hyper growth, activity in the mortgage market has begun to slow. Origination growth was most pronounced for Gen Z consumers who entered the market and became first-time homebuyers.

• Mortgage originations are continuing to grow but at a slower rate than previous quarters — with a 7% YoY increase in volume during Q2 2021, down significantly from the 76% YoY growth we saw in the same period last year
• New home purchases accounted for the bulk of origination volume, growing from 43% share in Q2 2020 to 53% in Q2 2021 and outpacing refinances
• Refinances slowed due to low demand, especially with rate and term refinancing which decreased 23% YoY
• Among origination loan types, FHA and jumbo loans grew at the fastest rate (+16% and +37%, respectively)
• Total mortgage balances grew 8% YoY to a high of $10.5 trillion in Q3 2021
• The average new loan amount increased 4% YoY to over $305,000 — the result of low inventory, high consumer demand and rising home prices

Our view: We expect the trend of home purchases to continue to overtake refinances, especially if consumer demand for homes stays strong and inventory improves. This assumes mortgage rates continue to rise, which will cause refinances to decline.

Q3 2021 Mortgage Trends 

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

For more information about the report, please register for the TransUnion Q3 2021 CIIR webinar.