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Data Snack: US consumer credit remains healthy in Q1 despite macro headwinds

  • The uncertain macroeconomic environment is incentivizing consumers to be disciplined around their spending, which hasn’t yet recovered to pre-pandemic levels.
  • Despite inflation and rising interest rates, consumers continue to show healthy behaviors when it comes to paying off their debt.
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Data Snack: US consumer credit remains healthy in Q1 despite macro headwinds

During the pandemic, consumers benefited from stimulus funds and other accommodation programs that provided a safety net. But today, new challenges such as inflation and rising interest rates are starting to have an impact on consumer spending power, according to TransUnion.

This stressful macroeconomic environment is incentivizing consumers to continue to be disciplined around their spending, which hasn’t yet recovered to pre-pandemic levels. 

TransUnion’s Credit Industry Indicator found that the average credit card balance was around $5,000 in the first quarter of this year. While this was a 4.7% increase over Q1 2021, it still fell 11% short of the average balance in Q1 2020. Total credit card balances for the industry were $769 billion, a 5.5% reduction compared to Q1 2020.

But despite the inflation and rising interest rates, consumers continue to show healthy behaviors when it comes to paying off their debt.

“While it’s getting more difficult for consumers to pay for their daily activities, we are seeing that they are paying more than their minimum payments due on their monthly bills. I think it is remarkable that people are still paying more than they have to on their bills during these inflationary times,” said Michele Raneri, vice president of research and consulting at TransUnion.

Credit card originations are at an all-time high with 21.4 million new credit cards issued in Q4 2021 – a 7% quarterly increase and 38% more than in Q4 2020. This growth was driven by non-prime segments of the market, with cards issued to subprime consumers up nearly 60% year-on-year.

“Increased originations is really a signal that lenders are confident that they’re seeing the metrics both on their own books, as well as on market trends, and they’re deducing that it’s still a good market to continue to grow,” Raneri said.

In personal loans, lenders are cautiously expanding back into the non-prime segment of the market, with Q4 origination risk tier distribution approaching pre-pandemic levels, according to Liz Pagel, senior vice president and consumer lending business leader at TransUnion.

“Inflation is putting pressure on all consumers, which will likely drive continued growth across risk tiers as consumers seek credit to finance specific purchases or for debt consolidation. Lenders will continue to monitor performance of subprime and near-prime consumers across their portfolios for signs of deterioration as they continue to lend in this segment,” she said.

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