4 charts

How younger generations are driving the recovery in consumer credit in 4 charts

  • When the pandemic hit, credit issuers tightened their lending criteria and focused more on serving prime consumers.
  • The consumer credit markets have since recovered, mostly due to younger generations, but the steep growth witnessed last year is expected to subside in 2022.

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How younger generations are driving the recovery in consumer credit in 4 charts

The consumer credit market is recovering from the pandemic. When spending slowed down, people focused on saving and paying their debts. Due to rising uncertainty, credit issuers were tightening their lending criteria and focusing more on serving prime consumers.

Last year, those trends began to change - the market started to meet the rising demand for credit products, especially from younger consumers. And according to TransUnion’s 2022 Consumer Credit forecast, the rise in lending product origination is expected to continue into 2022, albeit at a slower pace. 

The study showed the upward trend in TransUnion’s Credit Industry Indicator, which is a country-specific quarterly measure of consumer credit health trends that summarizes movements in credit demand, credit supply, consumer credit behaviors, and credit performance metrics over time.

The US Credit Industry Indicator continued improving in Q3 2021, following a steep dive during the pandemic

US Credit Industry Indicator 2021
Source: TransUnion US consumer creditdatabase

The chart above illustrates that throughout 2020 and 2021 there has been significant recovery within the credit markets. Today there is really strong product origination growth fuelled by ample supply from lenders and strong consumer demand, according to TransUnion.

Performance remains stable according to the report, after the credit industry saw some pretty significant paydowns in 2020 and early 2021. 


But even as consumers paid on their revolving loans, the total overall consumer balance continued to increase to just over $15 trillion at the end of Q3 2021. 

The total number of consumers in the market also continued to grow, with nearly 246 million consumers in the third quarter of 2021 carrying a balance on at least one credit product. This was an increase of 3 million consumers compared to Q3 2020.  

With the auto industry experiencing supply challenges, mortgage and personal loans are the stars of the show in terms of origination.

Origination growth has been uneven across products in non-pandemic comparisons

year over year origination growth 2021
Source: TransUnion US consumer credit database

Gen Z takes the lead in credit cards

While card issuers tightened new card volume during the pandemic, that trend has now shifted. Total bankcard originations reached new peak levels compared to previous years at 19.3 million in 2021, nearly doubling year-on-year, as lenders are looking to grow their wallet share knowing consumers will shortly be out spending again. 

Where are those originations coming from? The younger generations. 

As Gen Z begins its financial journey while Millennials build credit, they are slowly but steadily becoming a larger portion of the consumer market. Paired with lenders’ increasing willingness to serve below prime consumers, Gen Z and Millennials have been driving the growth in credit card originations. 

Gen Z and Millennials continue to drive an increasing share of overall bankcard originations

volume of bankcard originations 2021
Source: TransUnion US consumer credit database

Notably, Gen Z represented 14.2% of originations in last year’s second quarter, up from 13.3% in 2020 and 9.5% in the corresponding period of 2019. Millennials continue to be the dominant demographic segment, representing nearly a third of the market.

Meanwhile, Baby Boomers are down to 21.3% in Q2 2021 compared to 26.9% just two years earlier. 

“There’s definitely a shift going on here and it will be interesting to see it going forward, but I would imagine that it would be difficult to remain at the pace that we’ve seen thus far,” said Chris Huszar, Senior Manager of Financial Services Consulting at TransUnion in a webinar.

“We’re expecting it to stabilize in Q2 2022, as lenders recalibrate and expand their origination strategies to full spectrum lending, going into non prime risk tier space,” added Atsuko Watanabe, Director of Financial Services Research at TransUnion. 

“The spike that we’ve seen is due to picked up demand, which is not sustainable to maintain growth over time. Overall, into 2022 we anticipate that it’s going to stabilize and come down to pre-pandemic levels,” she said. 

Gen Z also led the rise in card balances, up nearly 14% year-on-year in Q3 2021. Millennials were the only other demographic cohort displaying card balance growth, but these increased by only 1.8% for the quarter. 

However, Huszar mentioned that the two younger generations had a smaller overall balance reduction when the pandemic hit, which contributed to the larger growth recorded last year. He noted that he expects to see an increase this year in the older generation groups as well. 

Average bankcard balances for Gen Z continued to grow, spiking nearly 14% in Q3 2021

you changes in bankcard balance
Source: TransUnion US consumer credit database

Overall, credit card balances are expected to gradually increase over the next year. 

“In the beginning of the pandemic, what we really saw was a significant paydown and a slowing credit activity in the lending and credit card space. We expect to continue to see a recovery, but not to the extent of the peak that we saw back in 2019,” Watanabe argued. 

The increasing demand for credit paired with a proportional increase in consumer spending will drive a rise in balances. However, as there is still consumer liquidity remaining in the market, the growth in the bankcard balances will meet a healthy and gradual increase into the coming year, she concluded. 

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