Gen Z Is Hungry for Credit Products—But Will Lenders Serve Up Lines of Credit?

Gen Z has a credit appetite for bankcards and unsecured loans, according to the newly released Q2 2023 Credit Industry Insights Report (CIIR) from TransUnion. Furthermore, TransUnion’s July Consumer Pulse Survey found 50% of Gen Z borrowers — compared to 32% for the entire population — are planning to apply for new or refinance existing credit (e.g., student loan, credit card, personal loan, car loan/lease, or mortgage) within the next year. That’s a big jump from the 41% of Gen Z who said the same in July 2022.

“It makes sense to see Gen Z consumers’ use of credit card and personal loans increase as they age into financial independence,” said Michele Raneri, Vice President of US research and consulting at TransUnion. “Like the overall population, many Gen Z borrowers are facing the same financial challenges brought on by high interest rates and inflation. As a result, they’re tapping into these available credit products to help cope with increasing costs of expenses and the tightening of their monthly budgets.”

Gen Z total credit card balances and share of total balances were up YoY

The report also found lenders are increasingly focused on less risky credit tiers when considering new originations across a number of credit products. That could impact some Gen Z borrowers, particularly subprime borrowers, as both auto originations and unsecured personal loan originations are down.

To learn more about the latest consumer credit trends, register for the Q2 2023 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: Q2 2023

Both bankcard originations and average credit lines hit record highs in Q1 2023, primarily driven by growth in the prime plus and super prime risk segments. This was a stark contrast from Q1 2022 when the subprime and near prime risk tiers drove growth. Other insights from the report include:

• Bankcard balances reached a new record high of $963 billion in Q2 2023, representing YoY growth of 17.4%
• The number of cards held per consumer increased to 2.9 in Q2 2023, and the average balance per consumer rose to $5,947, the highest in the past 10 years
• Total credit line once again set an all-time record for the fifth consecutive quarter, rising to $4.5 trillion, which represents a YoY increase of 9.6%
• Total utilization remained in check (below 22% in Q2) despite growth in total credit line
• Average credit limit per consumer reached a new all-time high for the second consecutive quarter at $24.9K, a YoY growth of 6.4%
• 90+ DPD consumer-level bankcard delinquency was at 2.06% in Q2 2023, up from 1.57% in Q2 2022 but representing a decline of 20 bps QoQ 

Our view: Bankcard balances continued to grow; however, consumers distributed those balances across more cards than in the past, resulting in balances per account remaining within normal limits. Lenders seemingly made a clear shift in acquisition strategies following two consecutive quarters of record originations. Subprime’s share declined significantly for the second quarter in a row, while super prime’s share increased to that of pre-pandemic levels.

Q2 2023 credit card trends 

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

For more credit card industry information, click here for episodes of Extra Credit: A Card and Banking Podcast by TransUnion. 

Consumer credit trends in the personal loan sector: Q2 2023

Unsecured personal loan balances reached $225 billion in Q2 2023; the highest level on record, representing YoY growth of 21.1%. The growth was led by super prime (up 39.5% YoY) followed by subprime (up 25.9%), with other risk tiers seeing YoY balance increases in the teens. Despite that growth, Q2 2023 represented the third consecutive quarter the rate of YoY balance growth declined. Other insights from the report include:

• Average account balance reached a record high of $8,558, representing an 11.1% increase YoY as super prime loans are typically larger
• Q2 2023 showed a record number of consumers with an unsecured personal loan balance, reaching 22.7 million (an increase of 8% YoY)
• Q1 originations were down 16% YoY compared to the record-breaking originations seen in the first half of 2022, representing the second consecutive quarter of YoY declines
• Originations were down YoY across all risk tiers with the exception of super prime which grew 26.3%
• Despite YoY declines, the 4.3 million originations in Q1 2023 still represented a 9.1% increase over pre-pandemic Q1 2020, reflecting the growth of the industry
• Delinquencies decreased QoQ for the second consecutive quarter, edging closer to historical norms seen prior to the pandemic
• Delinquencies remained elevated YoY with 60+ DPD borrower level delinquencies reaching 3.6% in Q2 2023, up 7.4% YoY, and subprime delinquencies decreased QoQ  

Our view: Driven by growth in the super prime segment, unsecured personal loan balances continued to increase. Overall growth continued to slow as lenders steered toward less risky borrowers. Subprime delinquencies backed off their Q1 2023 highs, leading to a decrease in overall delinquency that, while still high, inched closer to levels seen pre-COVID. Lenders can still find opportunity with consumers amid high employment levels, despite inflation and other challenges.

Q2 2023 unsecured personal loan trends

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

Click here for additional unsecured personal loan industry metrics. Click here for a Q1 2023 unsecured personal loan infographic.

Consumer credit trends in the mortgage sector: Q2 2023

Total mortgage balances fell to $11.7T in Q2 2023, down slightly from last quarter’s record high but still 4.3% up YoY, representing the first quarterly decline in total mortgage balances since 2015. Other insights from the report include:

• Mortgage originations continued their decline, once again falling to a record low of 899K in Q1 2023, down 59% YoY from 2.2M a year ago, the second largest annual decline on record
• Purchases made up 87% of the volume in Q1 2023 with 780K originations, down by 40% YoY from 1.3M in Q1 2022
• Overall refinance was down by 86% from 870K to 121K
• Rate and term refinance originations decreased 93% YoY, down from 305K in Q1 2022 to just 23K in Q1 2023, marking the third consecutive quarterly record low
• Cash-out refinance originations also fell to a new record low in Q1 2023, down 83% YoY from 565K to 98K
• Home equity originations remained in line with last year’s historically high levels as HELOC originations fell 14% YoY to 252K in Q1 2023, but HELOAN originations were up 18% (from 203K to 240K) over the same time period
• Mortgage delinquencies displayed a slight YoY increase with 60+ DPD delinquencies rising 14% to 0.96% in Q2 2023, representing the fifth consecutive quarter of YoY increases but still below pre-pandemic levels

Our view: High mortgage rates resulted in historically low mortgage originations, largely due to a drop in refinancing. The majority of existing mortgages have rates under 6%, so homeowners have no incentive to refinance. Eighty-one percent of homeowners who are refinancing opted for cash-out, indicating consumers remain interested in tapping into the equity in their homes to pay off debt with higher interest rates. Despite a fifth consecutive quarter of increasing delinquency levels, they still remained below historical norms, but this is a trend worth watching particularly as we continue to observe the effects of inflation on consumers’ wallets.

Q2 2023 mortgage trends 

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

Click here for additional mortgage industry metrics. Click here for a Q1 2023 mortgage infographic.

Consumer credit trends in the auto sector: Q1 2023

With inventories on the rebound, average amounts financed for new and used cars began to stabilize. Other insights from the report include:

• Originations in Q1 2022 were down 9.4% YoY to 6.1 million — while also experiencing a slight seasonal uptick from 5.9 million in the previous quarter
• Originations were down across most risk tiers YoY; only super prime showed a YoY gain of 2.1%, while subprime saw the largest decline at 21.3% followed by near prime which was down 12.3%
• As new car inventories started to rebound, the new vs. used split began to revert back to pre-pandemic norms with new cars making up 42% of all cars financed in Q2 2023, up from 39% both YoY and QoQ
• Average amounts financed for new vehicles stabilized YoY, while used saw a decline of 6.3% YoY
• Monthly payments were up for both used vehicles (2.4%) and new vehicles (9.1%) YoY; however, increases mostly stalled over the past two quarters
• Point in time 60+ DPD account delinquency remained mostly unchanged at 1.71% in Q2 2023, up from 1.69% in Q1 2023
• Vintages continued to show performance similar to 2021; an early look at Q3 2022 and Q4 2022 originations performance showed improvement 

Our view: Inventories rebounded from pandemic-era lows, which will likely put pressure on both new and used car prices, and could lead to the return of more new vehicle incentives. That will be important as affordability remains an issue for consumers, particularly in below prime risk tiers.

Q2 2023 auto loan trends 

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

**Data from S&P Global Mobility Auto Credit Insight, Q2 2023 data only for months of April and May. Click here for additional auto industry metrics. 

For more information about the report, please register for the Q2 2023 Credit Industry Insight Report webinar.

About TransUnion (NYSE:TRU) 

TransUnion is a global information and insights company with over 12,000 associates operating in more than 30 countries. We make trust possible by ensuring each person is reliably represented in the marketplace. We do this with a Tru™ picture of each person: an actionable view of consumers, stewarded with care. Through our acquisitions and technology investments we have developed innovative solutions that extend beyond our strong foundation in core credit into areas such as marketing, fraud, risk and advanced analytics. As a result, consumers and businesses can transact with confidence and achieve great things. We call this Information for Good^®— and it leads to economic opportunity, great experiences and personal empowerment for millions of people around the world. 

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