TransUnion predicts a ‘return to credit’
Consumers carried TransUnion’s lowest credit card balances in March on record, but it expects balances to start rising this year as consumers become more confident in the economic recovery, according to a report. released Wednesday by the Chicago Credit Analysis and Assessment Company.
Consumer borrowing through credit cards, unsecured personal loans and automobiles fell precipitously after the COVID-19 pandemic was declared in March 2020.
Matt Komos, head of research and advice at TransUnion in the United States, said auto credit has started to recover, hampered more by supply than demand. Credit cards and personal loans are still weak, but credit inquiries and economic indicators point to increased spending in the coming months.
“We anticipate that there will be this return to credit,” Komos said. “We are still in a very low interest rate environment, so consumers are encouraged to resort to debt.”
At the same time, delinquencies have remained surprisingly low, and TransUnion has grown confident that credit quality will remain high even after lender housing declines.
“There is room for lenders to grow,” Komos said. “We are seeing good performance. This should give assurance to lenders that now is the right time to come back to the market. “
Komos said consumers will start spending more on big-ticket items, from vacations to home renovations. People will eat more in restaurants, travel more, and let their credit card balances go up.
“These are the kinds of things we expect to see return as the economy reopens. Lenders are increasingly comfortable with the direction the economy is heading, and consumers have the ability and capacity to take on additional debt, if they have that interest and that need. “
TransUnion’s Industry Insights Report for the first quarter showed consumers had an average credit card balance of $ 4,791, down from $ 5,653 in March 2020 and the lowest level since TransUnion began trading. measure it in 2009.
“We don’t know if the bottom is reached,” Komos said.
PSCU, a payments CUSO based in St. Petersburg, Fla., Reported on Tuesday that its members were averaging about $ 2,610 on their credit cards as of April 30, down slightly from March and down sharply over time. the last two years. The sales were around $ 2,900 in April 2020 and $ 3,050 in April 2019.
“Credit card balances (for our comparable store population) have been declining since July 2019, due to two key factors: lower sales volume, which has been negative for many months, and higher payment volume. high, made possible in part by the three federal stimulus measures. payments ”, according to the PSCU report.
TransUnion found that unsecured personal loan balances stood at $ 8,999 in March, down only slightly from a year earlier. Further growth will depend on rising credit card balances, which often lead consumers to take out personal loans to consolidate their debt at a lower interest rate.
“That has been the challenge,” Komos said. “Since consumers haven’t created card balances, it doesn’t get interesting for debt consolidation because you are paying off your balances.”
Lenders sharply lowered credit card limits when the pandemic began. However, lenders are starting to consider offering more cards to high-risk groups and increasing limits for current cardholders.
“There is going to be a change in opening these lines again, and potentially looking for new consumers,” he said. “They want to make sure that the employment situation continues to improve.”
Meanwhile, mortgages have seen strong increases over the past year and auto loans have started to recover in recent months. Average mortgage debt was $ 296,505 in March, up 3.3% from a year earlier, while average auto loan balance was $ 20,001 in March, up 3.6% .
New car shortages have driven up prices and led to used car shortages.
“For the consumer, it becomes a question of affordability: what type of car can I afford?”
For lenders, it’s about recalculating loan-to-value and interest rate policies for residuals that could be inflated and risk falling sharply.
“It’s almost an anomaly,” Komos said. “Many lenders will have to make an adjustment when they take into account residual value.”