Ten million new consumers have entered the credit card marketplace in the last year, pushing the overall total of Americans with a balance on at least one credit card to 133 million at the midpoint of 2016. TransUnion’s Q2 2016 Industry Insights Report, powered by PramaSM analytics, also found that total balances have increased to $662 billion as of Q2 2016, up 6% from Q2 2015.
The report indicated that 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% of those opening their first credit card during Q2 2016.
Credit card usage continues to increase at levels in line with consumer confidence and likely due to a relatively strong employment market. Consumers tend to apply for more credit cards and use them more frequently when they are gainfully employed.
The U.S. unemployment rate has dropped from 5.3% in June 2015 to 4.9% in June 2016. The unemployment rate is now nearly half of what it was in June 2009 (9.5%)—the month concluding the “official” end to the Great Recession.
Trends in the card market
|Credit card metric||Q2 2016||Q2 2015||Q2 2014||Q2 2013|
|Total general purpose card balances||$662 billion||$623 billion||$601 billion||$580 billion|
|Subprime % of total balance||11.0%||10.3%||10.3%||10.5%|
|Delinquency rate (90+ DPD) per borrower||1.29%||1.20%||1.31%||1.39%|
|Subprime delinquency rate||11.65%||11.12%||11.95%||12.69%|
|Average debt per borrower||$5,247||$5,197||$5,228||$5,222|
|Subprime debt per borrower||$5,063||$4,891||$5,080||$5,195|
|Prior quarter originations*||15.28 million||13.50 million||12.13 million||9.92 million|
*Note: Originations are viewed one quarter in arrears to account for reporting lag.
As credit card usage rose in the second quarter, TransUnion observed how different credit risk tiers have impacted balance growth. In the last year, non-prime consumers (VantageScore® 3.0 score of 660 or below) have been building up their balances most, while those in the prime and above risk tiers (VantageScore® 3.0 score of 661 or above) are more actively deleveraging credit card balances.
Prime and above consumers made up 83% of consumers whose balances declined in the last year. Conversely, they represented 71% of consumers who built up their balances in the last year.
Prime and above consumers represent nearly 79% of all credit card users, so their credit behavior is especially significant for the industry. 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.
The serious delinquency rate per borrower (90+ days delinquent) stands at 1.29% as of Q2 2016, up from a 1.20% reading in Q2 2015. While delinquency has increased, we believe it is in line with the increased share of non-prime originations over the past year. As well, delinquency rates remain low relative to historical norms.
“Our latest Industry Insights Report still points to a healthy consumer credit market,” my colleague Nidhi Verma, senior director of research and consulting in TransUnion’s financial services business unit reported in our recent webinar. “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. This is clearly seen in the credit card space where balances in the subprime risk tier have risen nearly 14% in the last year, yet credit lines for these consumers have not changed.”