According to TransUnion’s Q3 2022 Quarterly Credit Industry Insights Report (CIIR), credit card balances advanced 19 percent year over year in the third quarter, to an all-time high of $866 billion. The growth was driven heavily by Generation Z and millennial borrowers, with balances expanding by 72 percent and 32 percent, respectively.
The average credit card debt per borrower was $5,474, up 12 percent from last year. The delinquency rate also edged up, to 1.94 percent during the July–September period, up from 1.13 percent at the same time a year ago.
“In this inflationary environment, consumers are increasingly turning to credit, as evidenced by the record total bankcard balances this quarter,” said Paul Siegfried, a senior vice president and credit card business leader at TransUnion, in a statement. “This is particularly true among the subprime segment of consumers. Delinquencies are rising, which is to be expected given the increase in consumers getting access to credit, many for the first time.”
In the previous quarter, a record 22 million consumers maintained an unsecured personal loan, with total balances climbing 34 percent year over year, to $210 billion. The delinquency rate surged to 3.89 percent, up from 2.52 percent in the third quarter of 2021. The average debt per borrower was $10,749, rising more than 14 percent year over year.
“As expected, increased lending to higher risk tiers drove increased overall delinquency rates, with serious delinquencies now exceeding pre-pandemic levels,” noted Liz Pagel, the senior vice president of consumer lending at TransUnion.
Meanwhile, more homeowners are borrowing against their residential properties. TransUnion data found that the number of home equity line of credit originations advanced at an annualized rate of 47 percent, to more than 409,000, and home equity loan originations swelled 42 percent, to 296,723.
But delinquency rates have been low, coming in at 0.6 percent compared to 1.02 percent in the third quarter of 2019.
While the number of auto loans has tumbled more than 2 percent year over year, to 81.2 million, the delinquency rate has been steadily climbing, to 1.65 percent. This is most pronounced among subprime borrowers, says Satyan Merchant, the senior vice president and automotive business leader at TransUnion.
“Delinquencies are up, particularly among subprime consumers, a trend which we expect to continue for the immediate near-term,” stated Merchant. “However, the overall delinquency rate remains in relative alignment with historical norms.”
In addition, average monthly payments for new and used vehicles rose to $679 and $517, respectively. Further, the average balance advanced nearly 14 percent, to $29,169, and the average debt per account jumped 9 percent, to $18,405.
The Rise of Delinquency Rates?
According to the Federal Reserve Bank of New York’s Liberty Street Economics blog, the most notable concern is the end of historically low delinquency rates.“When we break these out by neighborhood income using borrower zip codes, we observe that the delinquency transition rates for credit cards and auto loans are creeping up, particularly in lower-income areas. These rates appear to be resuming a trend in rising delinquencies among subprime borrowers that we had begun to see in 2019 in auto loans, where subprime borrowers retain a nontrivial share of the outstanding balances.”
Early-stage delinquency rate (30–59 days past due) was 1.2 percent in August, up from 1.1 percent. Adverse delinquency (60–90 days past due) was unchanged at 0.3 percent. Serious delinquency (90 days or more past due) was 1.2 percent, down from 2.6 percent in August 2021. The foreclosure inventory rate inched higher to 0.3 percent, up from 0.2 percent.
Americans Struggling with Cost of Living
A recent Lending Club report found that 63 percent of Americans were living paycheck to paycheck in September, slightly below the record high of 64 percent in March.Is this, then, the pain that Fed Chair Jerome Powell warned about this past summer?