Bankcard Balances Surpass $1 Trillion as Millennials Increasingly Turn to Cards
Q4 2023 TransUnion Credit Industry Insights Report explores the latest U.S. credit trends
Findings from the newly released Q4 2023 Quarterly Credit Industry Insights Report (CIIR) from TransUnion (NYSE: TRU) reveal that credit card debt is at a historical high, driven in part by Millennials further building on their credit portfolios. This comes at a time when an anticipated reduction in interest rates over the course of the coming year may open up new avenues to more affordable credit.
Bankcard balances reached a new record in Q4 2023, surpassing the $1 Trillion mark for the first time on the back of 13% growth year-over-year (YoY). Balances increased across all risk tiers, led by subprime which grew 32% YoY to $105 billion. Generationally, the Gen X share of bankcard balances continued to be the largest (33.8%) while the Millennial share (29.4%), for the second straight quarter, surpassed that of Baby Boomers (26.7%). Millennials were the overall share leader in originations in Q3 2023, accounting for 29.6% of all new bankcard originations.
“Inflationary pressures and higher-than-expected living costs have led to many consumers turning to bankcards to help make ends meet in recent quarters, and Millennials are no exception,” said Michele Raneri, vice president and head of U.S. research and consulting at TransUnion. “It’s worth watching how this generation uses credit in the coming year, one which will likely see some positive economic developments play out, but also challenges. Among these challenges will be the end of the one-year on-ramp to student loan payment resumption, something that may impact many consumers in this generational group.”
At the same time, originations for both unsecured personal loans as well as home equity lending products were down YoY. This development is interesting as both products potentially offer consumers and homeowners lower-interest options to refinance high-cost credit card debt. Unsecured personal loans in Q3 2023 were down 10% YoY, which is the fourth consecutive quarter of decreasing origination volume, as lenders show more scrutiny in their lending decisions and lenders in the FinTech sector face continued capital constraints. While home equity lending remains stronger than prior to the pandemic, both HELOC and HELOAN originations were down significantly YoY in Q3 2023 – reflecting declines of 29% and 8%, respectively – as more homeowners have been holding off from tapping into available home equity while interest rates remain high.
“If the expected Fed interest rate cuts over the course of 2024 take place, lenders may find opportunity as consumers carrying elevated card balances seek to lower their monthly payments by refinancing high-cost debt into a lower interest product,” said Raneri. “Consumers should know their credit scores and work to improve them where possible. This will ensure they are as well-positioned as they can be to take advantage of those lower rates if the opportunity arises.”
Credit balances continue to rise as TransUnion’s Credit Industry Indicator (CII) fell to 107 in Q4 2023, its lowest since Q1 2021, just before the post-pandemic surge in credit usage. Multiple factors played a role in this drop, including slowing new credit demand and supply as well as rising delinquency rates. The CII is a quarterly measure of depersonalized and aggregated consumer credit health trends that summarizes movements in credit demand, credit supply, consumer credit behaviors and credit performance metrics over time into a single indicator. Examples of data elements categorized into these four pillars include: new product openings, consumer credit scores, outstanding balances, payment behaviors and more than 100 additional variables. Increases in the CII level indicate overall positive trends in the health of the credit market.
To learn more about the latest consumer credit trends, register for the Q4 2023 Quarterly Credit Industry Insights Report webinar. Read on for more specific insights about credit cards, personal loans, auto loans and mortgages.
Bankcard balances surpass $1 Trillion as average credit lines per consumer reach an all-time high
Q4 2023 CIIR Credit Card Summary
Bankcard originations were down 7% YoY in Q3 2023, representing the second consecutive quarter of annual decline. The largest percentage of originations occurred among the borrowers in the super prime risk tier followed closely by prime borrowers. Looking at borrower generations, Millennials led the way in share of originations, accounting for nearly 30%. Total bankcard balances surpassed the $1 Trillion mark for the first time in Q4 2023, representing growth of 13% YoY. Average balance per consumer was a significant part of the total balance growth and increased by 10% YoY to an all-time high of $6,360. At the same time, the number of active cardholders carrying a balance continued to steadily increase over the past 12 quarters. Total credit lines grew 8% YoY. In terms of performance, 90+ Days Past Due (DPD) consumer level delinquencies increased by 32bps YoY to 2.59% while 90+ DPD balance-level delinquencies increased by 65bps YoY to 2.17%, which marks the highest level in a decade.
Instant Analysis
“A pullback in nonprime issuance was a primary driver in the YoY decline in Q3 2023 originations and breaks the historical seasonal pattern. While delinquencies in Q4 2023 were elevated, they were in line with the expected forecasts given historic non-prime originations and balance growth. We will be carefully watching to see if typical seasonal patterns will return based on liquidity events such a tax returns and annual wage growth.”
- Paul Siegfried, senior vice president and credit card business leader at TransUnion
Unsecured personal loan balances grow while originations decline; delinquencies drop but remain elevated
Total unsecured loan balances grew for the 11th consecutive quarter to a record of $245 billion in Q4 2023, representing a YoY increase of 10.5%. Balance growth was seen across all risk tiers, led by super prime at 35% growth YoY. Average account balance grew YoY by 6.2% to a record $8,704, led by increases in subprime (11.4%) and followed by super prime (7.6%). Originations fell by 10.3% YoY from record levels in 2022, and that was reflected in new account balances, which were down 14.6% YoY in Q3 2023 to $33 billion. All risk tiers except for super prime saw YoY declines in new account balances. Borrower-level 60+ DPD delinquency was 3.9% in Q3 2023, down from 4.1% a year prior, reflecting an originations mix shift to lower-risk borrowers due to lender tightening over the past several quarters. On a vintage basis, performance for the Q4 2022 new account vintage (through November 2023) improved vs. the Q4 2021 cohort over a similar time period but still had an elevated 60+ DPD delinquency rate at the account level compared to earlier vintages.
Instant Analysis
“With interest rates eventually lowering over the course of 2024, there could be a gradual thaw in the unsecured personal loans market. However, lenders and investors will be watching delinquency rates closely, and will hope to see continued improvements in overall and vintage performance. In the meantime, lenders will continue to compete for lower risk consumers.”
- Liz Pagel, senior vice president of consumer lending at TransUnion
Gen Z share of originations grows as high interest rates continue to drive sluggish mortgage market
Q4 2023 CIIR Mortgage Loan Summary
Origination volumes continued to see YoY declines, down 22% to 1.2 million in Q3 2023. This, however, represented the smallest YoY decline in the past seven quarters, indicating that the mortgage origination market may be near its bottom. Purchase originations were down 18% YoY for the quarter, while rate and term refinance was down 27%. Cash-out refi was down 44% YoY in Q4 2023. Generationally, the share of mortgage originations in Q4 among Gen Z rose from 9.6% in Q3 2022 to 13.2% in Q3 2023 as more Gen Z consumers age into traditional homebuying years, while all other groups fell in share over the same period. In the home equity market, the post-pandemic surge in originations has slowed but remained above recent historic norms in Q3 2023 at 582K. This represents the second-highest Q3 since 2008. The total was split fairly evenly between HELOCs and HELOANs for the quarter, and both were driven by originations from Gen X and Baby Boomer homeowners. 60+ DPD consumer-level delinquencies continued to inch higher to 1.03% in Q4 2023.
Instant Analysis
“Persistently high mortgage rates remain a significant headwind in the mortgage market, particularly affecting demand for refinance. Purchase originations will continue to drive the mortgage market over the next several quarters, as demand for refinance will depend on mortgage rates falling significantly below current high levels. The 2022 resurgence in home equity lending continued to recede in Q3 2023, with both HELOCs and HELOANs coming off the 10-year highs seen the year prior.”
- Satyan Merchant, senior vice president, automotive and mortgage business leader at TransUnion
An uptick in leasing as auto inventories begin normalizing; delinquencies continue to climb
Q4 2023 CIIR Auto Loan Summary
Q3 2023 saw a 4% YoY decline in auto originations, down to 6.3 million. Among risk tiers, originations were up 13% YoY among super prime, but were down among all other risk tiers YoY, and remain down significantly when compared to pre-pandemic levels in 2019. The new vs. used share continues to slowly trend back down toward pre-pandemic levels, with used cars representing 58% of vehicles financed in Q4 2023. While still well below pre-pandemic levels, the leasing market continues its slow recovery, driven in part by more normalized inventories. 22% of newly registered vehicles were leased in Q4 2023, up from 17% one year prior. Average amount financed saw YoY declines for both new and used vehicles, with new down 3.0% YoY to $40,665 and used down 3.3% to $26,557. However, monthly payment amounts rose 1.8% for new vehicles and 1.1% for used vehicles. Point in time 60+ DPD consumer-level delinquency increased to 1.61% in Q4 2023, up from 1.43% one year prior. New vintages continue to show consistent delinquency performance when compared to the pre-pandemic periods of 2018-2019.
Instant Analysis
“New vehicle inventory continues to see recovery from pandemic-era lows, although some brands still face lingering shortages. These inventory recoveries will likely be followed by ongoing increases in consumer incentives, which should help mitigate affordability challenges in the new vehicle segment. Affordability remains an issue in the used vehicle market and for below prime consumers as we continue to see higher interest rates and the effects of inflation and used vehicle values remain elevated. While originations remain down YoY, the growth by super prime borrowers may be an early indicator of pent-up demand for vehicles, and that additional inventory and incentives may drive origination growth among additional risk tiers moving forward.”
- Satyan Merchant, senior vice president, automotive and mortgage business leader at TransUnion
