Access to credit, debt levels rise in Q2: study by TransUnion

According to a recent TransUnion study, consumers’ access to credit and their debt levels have increased. (iStock)

More consumers gained access to credit in the second quarter of this year and, as a result, their indebtedness has also increased a recent report by TransUnion.

According to TransUnion’s quarterly Credit Industry Insights Report, the number of consumers using credit cards and personal loans rose to new record highs in the second quarter.

“Consumers face multiple challenges that impact their finances on a daily basis, namely high inflation and rising interest rates,” said Michele Raneri, vice president of US research and advisory services at TransUnion. “However, these challenges come against a backdrop that job opportunities are still plentiful and the unemployment rate remains low. We are seeing lenders providing better access to credit for consumers without prime access, some of whom are new to credit.”

“This is a welcome development as more consumers have been able to access credit at a time when high inflation has taken a greater toll on their wallets,” Raneri said. “While defaults are generally rising after a period in which more non-prime borrowers are obtaining credit, default rates remain largely at or below pre-pandemic levels, particularly for cards and personal loans.”

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Inflation drives Americans to use credit products

Loan growth to sub-prime borrowers, or Americans with credit scores between 601 and 660, accelerated in the second quarter, TransUnion said. This was mainly due to an increase in personal loans and credit cards, which consumers used more as inflation rose.

inflation increased by 8.3% slightly downwards every year in August the month before but still nearly the highest it has been in about 40 years, according to the Bureau of Labor Statistics (BLS).

The percentage of personal loan balances held by subprime borrowers, or those with credit scores between 501 and 600, rose to 11.8% in the second quarter of 2022 from 8.1% a year earlier. And credit card balances rose to 6.9% in the second quarter . versus 5.3% at the same time last year.

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Credit card and personal loan debt rises in the second quarter

According to TransUnion, the number of consumers with access to a credit card increased to 161.6 million in the second quarter, up from 153.3 million at the same time last year. The average balance on these credit cards was $5,270 per consumer in the second quarter of this year, up from $4,817 last year.

In the second quarter, 21 million consumers had access to personal credit, up from 18.7 million at the same time last year. Average personal loan debt per borrower totaled $10,344 in the second quarter of this year, up from $9,079 last year.

“We have observed positive trends in the credit card industry in the first half of 2022, with more younger and subprime borrowers gaining access to credit cards,” said Paul Siegfried, TransUnion’s senior vice president and head of credit card business. “While serious payment defaults are on the rise, that’s to be expected as more consumers – many of whom are new to credit – secure a credit card.

“The positive thing is that serious defaults are nowhere near worrying,” said Siegfried. “The employment picture still remains relatively strong, although higher interest rates and high inflation are putting more pressure on consumers. Overall, it’s positive for the lending ecosystem that younger consumers can access credit so they can build their credit profiles for the future.”

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