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Lending Briefing: Gen Z is expanding the credit market

  • The US credit card market continues to grow: the number of credit cards topped 500 million for the first time ever at the end of Q2 2022.
  • Younger generations are behind the increase, experts say, as more Gen Zers start their credit journeys.

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Lending Briefing: Gen Z is expanding the credit market

The US credit card market continues to grow, with more indicators showing that younger generations are behind this increase as they begin their credit journey.  

The number of credit cards topped 500 million for the first time ever at the end of Q2 2022, up from approximately 465 million in Q2 2021, according to TransUnion's quarterly credit study. Overall, credit card originations increased 26% in the last year. 

Gen Z has been fueling this increase, with originations attributed to this generation up 32% between Q1 2021 and Q1 2022 (originations have a one-quarter lag in reporting). 

"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," said Michele Raneri, vice president of U.S. research and consulting at TransUnion. 

Meanwhile, total Q2 credit card balances grew by 13% year-on-year – the largest growth in more than 20 years, but this is skewed by the relatively lower balances carried throughout the pandemic.

But it's notable that Q2 2022 credit card balances were up by 30% for Gen Z and 22% for Millennials, compared to an 11% increase for the overall population, according to VantageScore research.

Plus, inflationary pressures are also driving consumers to reach for their credit cards more than before. 

Source: CNBC

The serious delinquency rate for subprime borrowers – measured as the percentage of subprime cardholders who are 90 or more days past due on any card – was 16.2% in Q2 2022.

This is a clear increase from the 11.5% rate seen in Q2 2021, but again, the metric is skewed by the fact that last year many borrowers were able to use pandemic-related government stimulus payments to pay down debt levels. 

Plus, an uptick in delinquencies is normal when you have new market entrants. Gen Z is again behind this rise, explained Paul Siegfried, senior vice president and credit card business leader at TransUnion.

“While serious delinquencies are rising, that is to be expected when more consumers – many of whom are new to credit – secure a credit card. On the positive side, serious delinquencies are nowhere near concerning levels. Overall, it’s a positive for the credit ecosystem to have younger consumers gain access to credit so they can build their credit profiles for the future,” he said.

Gen Z and Millennials show bigger rises in card delinquencies compared to other age groups, VantageScore research found. 

TransUnion's study also found that the subprime segment’s total balances grew 51.7% year-on-year, the highest growth rate ever achieved. But again, this was in comparison to the very low levels seen in 2021, Charlie Wise, head of global research at TransUnion, told Tearsheet.

“Most consumer risk tiers, including subprime, saw significant drops in bankcard balances in 2021 as pandemic-related stimulus payments, coupled with lower spending, enabled borrowers to pay down their card balances. Balances have increased over the past year as most stimulus programs have ended and spending levels have increased. For subprime, the YoY balance growth has brought balances back in line with levels seen prior to the pandemic,” he said.

Subprime loan balances represented 6.9% of total balances in Q2 2022, well below the 7.6% share seen prior to the pandemic in Q2 2019. Average bankcard balance per subprime cardholder is also 11% lower in Q2 2022 compared to Q2 2019.

Overall, the bankcard balance distribution is largely back to pre-pandemic levels, with higher shares of balances now held by lower-risk super prime and prime plus borrowers, which should give card issuers some reassurance, Wise added. 

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