Credit Card Balances at Lowest Levels Since 2017; Holiday Season Credit Usage in the Spotlight
Q3 2020 TransUnion Industry Insights Report explores latest consumer credit trends
CHICAGO, Nov. 11, 2020 (GLOBE NEWSWIRE) -- TransUnion’s (NYSE: TRU) newly released found that credit card balances decreased significantly on both a quarterly and annual basis, a trend that places even more emphasis on this year’s 2020 holiday shopping season.
Credit cards are the most widely used credit product in the U.S. with nearly 450 million accounts as of Q3 2020. However, average consumer-level credit card balances have declined across all credit risk tiers over the course of the COVID-19 pandemic and now stand at $5,075 as of Q3 2020, down from $5,668 in Q3 2019. Additionally, total bankcard balances fell to $723 billion, a decline of more than 10% year over year and the lowest level since Q2 2017.
Declining Credit Card Balances in Recent Quarters May Point to More of the Same this Holiday Season
| Year | Q4 Credit Card Balance (Billion) | Q3 Credit Card Balance (Billion) | Q2 Credit Card Balance (Billion) | |||
| 2020 | ? | $723 | $738 | |||
| 2019 | $847 | $807 | $795 | |||
| 2018 | $801 | $769 | $755 | |||
| 2017 | $764 | $731 | $714 | |||
“Credit card balances have been severely impacted by the COVID-19 pandemic as consumers have slowed purchases, especially on travel and entertainment. With fewer people using their credit cards to buy airline tickets or spend money on vacations, it’s understandable to see such a precipitous drop in balances,” said Paul Siegfried, senior vice president and credit card business leader at TransUnion. “At the same time, we’ve observed consumers using their credit cards to spend more on home-related purchases. There is also a belief that with the immense slowdown in balance growth during the last few quarters, we may see increased credit usage this fourth quarter as some consumers may be positioned to make more purchases this holiday season.”
The recent declines in total credit card balances reverse a three-year trend between the third quarters of 2017-2019. During those years, consumers consistently increased the balances of their private label and general purpose credit cards in the quarters preceding the holiday shopping season; balance increases continued during the fourth quarter holiday shopping season. In the 2019 holiday shopping season, consumers added $40.4 billion in bankcard balances – an increase of nearly 27% from the 2018 season.
Consumer sentiment, though, puts pressure on the continuation of this trend. A TransUnion in late October found that more than half of Americans (54%) said they have been financially impacted by the COVID-19 pandemic. Of those persons, half said they expect to decrease retail spending in the next three months and nearly six in 10 (59%) will do less discretionary spending.
“At the onset of the pandemic, financial hardship programs and the first round of government assistance initially boosted consumer liquidity,” said Matt Komos, vice president of research and consulting at TransUnion. “However, external factors such as rising unemployment and uncertainty regarding additional stimulus legislation may be impacting spending. Consequently, consumers have tightened their wallets to account for a decrease in disposable income. This holiday season will be of special importance to determine if consumers may start turning the corner on spending, or if we will see continued tightening of credit use.”
Economic Slowdown Impacts Auto Market as Loan Originations Decline
Q3 2020 IIR Auto Loan Summary
Loan originations in the auto market experienced an 11.9% year-over-year decline with 6.5 million new loans opened in Q2 2020, compared to 7.3 million in Q2 2019. While originations decreased across all tiers, this was particularly noticeable among subprime consumers as this risk tier declined 28.1% over the same period last year. Despite a recent decline, originations are expected to improve quarter over quarter in Q3 as the auto market moves past the large-scale shutdowns from earlier this year that contributed to dealership closures. Subprime origination growth will likely continue to lag other risk tiers as lenders skew their portfolios toward lower-risk consumers.
Instant Analysis
“While the overall percentage of auto accounts leveraging financial accommodation programs has been declining, there were approximately 3.8 million auto accounts in some form of accommodation at the end of September. The consumers that are still enrolled in such programs are the ones likely experiencing the greatest financial hardship as the risk mix of these consumers has been increasingly shifting toward subprime over the last few months. Performance has largely held steady, but as economic stimulus funds evaporate and consumers exit accommodation, future delinquencies may see an impact.”
- Satyan Merchant, senior vice president and automotive business leader at TransUnion
Q3 2020 Auto Loan Trends
Auto Lending Metric | Q3 2020 | Q3 2019 | Q3 2018 | Q3 2017 | ||||||||
Number of Auto Loans | 83.7 million | 83.4 million | 81.9 million | 78.6 million | ||||||||
| Borrower-Level Delinquency Rate (60+ DPD) | 1.45% | 1.40% | 1.36% | 1.40% | ||||||||
Average Debt Per Borrower | $19,646 | $19,145 | $18,835 | $18,567 | ||||||||
Prior Quarter Originations* | 6.5 million | 7.3 million | 7.3 million | 7.1 million | ||||||||
| Average Balance of New Auto Loans* | $23,850 | $21,953 | $20,998 | $20,653 | ||||||||
*Note: Originations are viewed one quarter in arrears to account for reporting lag.
Popularity of 15-, 20-Year Mortgages Continues to Grow
Q3 2020 IIR Mortgage Loan Summary
Mortgage originations increased to 3.3 million in Q2 2020, a 76% increase over the 1.9 million in Q2 2019. Refinance originations continue to drive a substantial percentage of origination activity with a 256% increase over last year. Rate and term refinance originations grew at a rate of 444%, while cash out refinance originations grew 113% year over year. Meanwhile, purchase originations grew at a slower rate of 5% year over year. For home purchases, 15- and 20-year loans grew 62% and 57%, respectively, outpacing the growth of 30-year loans, which experienced no growth this quarter. Shorter loan terms have outpaced the growth of 30-year loans since Q3 2019. Market share for 15-year purchase loans increased from 6% to 9% year over year and 20-year purchase loans rose from 2% to 3%. Market share for traditional 30-year loans declined from 87% to 83% over that same period of time.
Instant Analysis
“Historically, low interest rates have contributed to substantial refinance origination growth in the mortgage market. We observed this over the past quarter with refis accounting for the lion’s share of origination activity. Despite the economic uncertainties presented by COVID-19, purchase originations have remained strong with some consumers exploring shorter term loan options like the 15-year and 20-year loans. As refinance volumes are likely to decline in 2021, lenders may find opportunities for origination volume growth on the purchase market side, particularly with first-time home buyers.”
- Joe Mellman, senior vice president and mortgage business leader at TransUnion
Q3 2020 Mortgage Trends
Mortgage Lending Metric | Q3 2020 | Q3 2019 | Q3 2018 | Q3 2017 | ||||||||
Number of Mortgage Loans | 50.5 million | 50.1 million | 49.7 million | 49.4 million | ||||||||
| Account-Level Delinquency Rate (90+ DPD) | 0.89% | 1.14% | 1.32% | 2.06% | ||||||||
Prior Quarter Originations* | 3.3 million | 1.9 million | 1.7 million | 1.7 million | ||||||||
| Average Balance of New Mortgage Loans* | $293,731 | $278,723 | $254,530 | $245,007 | ||||||||
| Borrower-Level Delinquency Rate (90+ DPD) | 0.75% | 0.99% | 1.11% | 1.32% | ||||||||
Average Debt Per Borrower | $217,724 | $210,457 | $205,782 | $199,417 | ||||||||
*Note: Originations are viewed one quarter in arrears to account for reporting lag.
Personal Loan Balances Decrease as Lenders and Consumers React to COVID-19
Q3 2020 IIR Personal Loan Summary
Total balances in the consumer lending industry declined to $151 billion in Q3 2020, down from $156 billion in Q3 2019, following a dramatic drop off in originations due to the COVID-19 crisis. The first full quarter (Q2 2020) of COVID-19 impacted originations, which declined 46.2% year over year as lenders temporarily exited the market, tightened underwriting and/or shifted their portfolio mix toward lower risk consumers. Decreased consumer demand for credit also contributed to the drop-off, as stay-at-home orders drove decreased spending, and stimulus funds provided additional liquidity. Performance has remained stable as serious delinquencies improved to a 10-year low of 2.53% in Q3 2020. Delinquencies were down across all risk tiers, with the exception of super prime, which remained low, but ticked up to 0.03% from 0.02% in Q2.
Instant Analysis
“The pandemic drove a nearly 50% reduction in consumer lending originations in Q2 2020 versus the prior year. Lender pullback and decreased consumer demand continued over the past quarter as we saw total balances in the consumer lending market contract for the first time since early 2012. Lenders are expected to ramp up originations in Q4 for the holiday season as investor demand returns to the sector. The loans outstanding continue to perform well with delinquencies at the lowest point in a decade even as consumers begin to exit forbearance programs.”
- Liz Pagel, senior vice president and consumer lending business leader at TransUnion
Q3 2020 Unsecured Personal Loan Trends
Personal Loan Metric | Q3 2020 | Q3 2019 | Q3 2018 | Q3 2017 | ||||||||
Total Balances | $151 billion | $156 billion | $132 billion | $112 billion | ||||||||
| Number of Unsecured Personal Loans | 21.4 million | 22.5 million | 20.3 million | 17.5 million | ||||||||
| Number of Consumers with Unsecured Personal Loans | 19.4 million | 20.2 million | 18.5 million | 16.4 million | ||||||||
| Borrower-Level Delinquency Rate (60+ DPD) | 2.53% | 3.28% | 3.41% | 3.13% | ||||||||
Average Debt Per Borrower | $9,067 | $8,998 | $8,338 | $8,017 | ||||||||
Prior Quarter Originations* | 2.6 million | 4.8 million | 4.5 million | 3.6 million | ||||||||
| Average Balance of New Unsecured Personal Loans* | $6,092 | $6,382 | $6,253 | $6,140 | ||||||||
*Note: Originations are viewed one quarter in arrears to account for reporting lag.
Credit Card Market Reverses Growth Trajectory
Q3 2020 IIR Credit Card Summary
Following a peak in Q4 2019, consumer level serious delinquencies (90+ DPD) has fallen for three straight quarters to 1.22% in Q3 2020, a result of payment accommodation programs, lower spending and the increase in payments during the pandemic. While consumer performance has remained strong in the face of uncertainty, lenders have tightened underwriting criteria across the board with originations declining 48.3% year over year in Q2 2020 to 8.6 million – a trend that was observed across all risk tiers. As a result, total credit limits for new accounts hit their lowest level in 10 years at $32 billion and the average new account credit line decreased 25.2% to $3,952, down from $5,284 a year prior in Q3 2019.
Instant Analysis
“The unprecedented effects of COVID-19 have had a substantial impact on the credit card market in both the bankcard and private label sectors. A significant reduction in originations, credit lines and card balances was observed, but this has also led to a drop in delinquencies as performance has remained steady. To mitigate risk during this period of economic volatility, lenders have controlled for uncertain risks and tightened their books. Despite this reduction in originations, the number of consumers with access to a credit card continued to set a new record at 186 million.”
- Paul Siegfried, senior vice president and credit card business leader at TransUnion.
Q3 2020 Credit Card Trends
Credit Card Lending Metric | Q3 2020 | Q3 2019 | Q3 2018 | Q3 2017 | ||||||||
Number of Credit Cards | 449.8 million | 439.9 million | 425.1 million | 414.3 million | ||||||||
| Borrower-Level Delinquency Rate (90+ DPD) | 1.22% | 1.81% | 1.71% | 1.68% | ||||||||
Average Debt Per Borrower | $5,075 | $5,668 | $5,580 | $5,483 | ||||||||
Prior Quarter Originations* | 8.6 million | 16.6 million | 15.8 million | 15.5 million | ||||||||
| Average New Account Credit Lines* | $3,952 | $5,284 | $5,390 | $5,307 | ||||||||
*Note: Originations are viewed one quarter in arrears to account for reporting lag.
For more information about TransUnion’s Q3 2020 Industry Insights Report, please Additional resources for consumers looking to protect their credit during the COVID-19 pandemic can be found at .
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