By Nathalie Voit
Serious credit card delinquencies returned to pre-pandemic rates during the year’s second quarter, TransUnion said in a newly released report.
TransUnion Q2 2022 Credit Industry Insights Report revealed an increase in overall delinquency over the quarter as the number of consumers with access to credit skyrocketed. While 153.3 million consumers had access to a credit card in Q2 2021, that figure grew to 161.6 million twelve months later. Meanwhile, 21.0 million consumers took out a personal loan during the year’s second quarter, up from 18.7 million one year ago.
TransUnion said the record high credit card and personal loan ownership rates were driven by increased lending to subprime borrowers.
Non-prime borrowers made up 11.8% of the overall balance distribution for unsecured loans in the second quarter, up from 8.1% during the same period last year. Subprime consumers’ share of credit card balances also surged from 5.3% in Q2 2021 to 6.9% during the year’s second quarter.
At the same time, the number of newly approved credit cards reached 500 million for the first time ever in the second quarter of 2022 as lending rates soared. Gen Z, or adults ages 18 to 25, led the growth in credit card originations.
TransUnion said loans to Gen Z consumers–many of whom are accessing credit for the first time–rose by a staggering 31.6% between Q1 2021 and Q1 2022 (originations are reported one quarter in arrears).
Overall, originations rose 26% over the year as the subprime segment’s total balances grew 51.7% year-over-year, the highest growth ever recorded.
Higher credit card usage led to an increase in serious delinquency rates. The proportion of cardholders who missed three or more monthly payments in Q2 (90+ days past due) rose to 1.57% over the quarter, up from 0.95% a year earlier.
However, TransUnion said that rates still remain near their pre-pandemic averages despite the uptick in delinquencies.
“Consumers are facing several challenges that are impacting their finances on a day-to-day basis, namely high inflation and rising interest rates. These challenges, though, are happening against a backdrop where employment opportunities are still plentiful, and jobless levels remain low,” Michele Raneri, vice president of U.S. research and consulting at TransUnion, said in the report. “We see lenders offering more access to credit to non-prime consumers, some of whom are new to credit. This is a welcome development as more consumers have gained access to credit during a time when high inflation has placed a greater burden on their wallets.”
“While delinquencies generally rise after a period when more non-prime borrowers secure loans, the rates of delinquency remain mostly at or below pre-pandemic levels, particularly for cards and personal loans,” Raneri added.
