CHICAGO – Rising interest rates and the increased prices of goods and services placed pressure on the consumer wallet in the opening quarter of 2022. Despite the challenges, consumers remain well positioned from a consumer credit perspective, according to TransUnion’s (NYSE: TRU) newly released Q1 2022 Quarterly Credit Industry Insights Report (CIIR).

During the course of the COVID-19 pandemic, consumer performance remained relatively strong as stimulus funds, forbearance and accommodation programs provided consumers with a safety net during a period of great uncertainty. Now that pandemic financial programs have ended, new challenges such as inflation and rising interest rates are starting to have an impact on consumer spending power.

While prices are increasing, consumer spend has not yet recovered to the pre-pandemic levels. The CIIR found that in Q1 2022 the average credit card balance hovered around $5,010. While this was a 4.7% increase over Q1 2021 ($4,784) it still lagged 11% behind the average balance in Q1 2020 ($5,637). Total credit card balances for the industry are $769 billion, which is 5.5% below the $814 billion observed in Q1 2020.

In addition to consumer spend approaching pre-pandemic levels, consumer liquidity also remains stable. Aggregate excess payment (AEP) – the excess amount a consumer makes over the minimum amounts due on all their credit accounts – is typically an indication of a consumer’s ability to manage their overall debt payments. In Q1 2022, average AEP was $328, remaining relatively flat from the $326 observed in Q1 2021. The current level remains above the average AEP levels seen pre-pandemic.

Consumers are Paying More Toward Their Monthly Bills

“Compared to a year ago, the price of everything from filling a gas tank to buying a carton of eggs has increased due to inflation. Since wages of many consumers have not kept up with inflation, people are spending more to get less.  However there are several positives to note, including low unemployment, lenders increasing access to credit, and strong consumer performance,” said Michele Raneri, vice president of research and consulting at TransUnion. “These are all indications that consumers are well positioned as the economy continues to find its footing from the financial volatility of the pandemic.”

Credit Industry Indicator Shows Credit Health Remains High

Another sign that consumer credit health remains healthy: TransUnion’s Credit Industry Indicator (CII) increased to 116 in Q1 2022 – up from 115 in the previous quarter and 105 one year ago. The CII offers a comprehensive view of consumer credit health, aggregate a comprehensive view of credit data, including supply, demand, usage and performance, to show the overall picture of whether the credit market is improving or deteriorating. It also provides a view of the impact of economic market events, including inflation, on consumers. 

In addition to consumer credit health maintaining a healthy level, there has not been a material impact to consumer performance. Serious delinquency rates across mortgage, auto, credit card and personal loans have stayed relatively flat in the wake of expired forbearance programs or rolled back accommodation programs.

“Consumers are continuing to perform well on their credit and debt obligations – even when faced with several macroeconomic factors that are influencing affordability. Factors such as rising interest rates could affect the monthly payment amounts for some consumers, but we are currently seeing that they are continuing to make payments, sometimes even in excess, of what is required,” said Raneri.

For more information about the report, please register for the Q1 2022 Quarterly Credit Industry Insights Report Webinar. Read on for more specific insights about credit cards, personal loans, auto loans and mortgages.

Consumers Gain More Access to Credit as Credit Card Industry Rebounds 

Q1 2022 CIIR Credit Card Summary

For the third consecutive quarter, card origination volumes set an all-time record with 21.5 million new originations in Q4 2021. The total represents a 7% QoQ and 38% YoY increase. This surge was mostly driven by non-prime consumers with the subprime risk tier growing 57.5% and near prime growing 39.8% YoY. All other risk tiers exhibited double-digit growth, though at lower percentages. Credit card demand has led to a record 197 million consumers with access to such credit with 159 million of those consumers carrying a balance. Credit lines have also rebounded strongly with total credit lines exceeding $4 Trillion for the first time in Q1 2022 and the average new account credit line growing to $4,634 – an increase of 21.6% YoY.

Instant Analysis

“Card issuers continue to exhibit strong interest in pursuing growth and meeting consumer demand for credit through larger origination volumes and extending higher credit lines. While total credit lines are at a record high, the average credit line remains below pre-pandemic levels as lenders manage risk for the origination growth in the below prime risk segments. However, in spite of inflation pressures and the rising price of goods and services, growth among consumer balances remains muted and has shown minimal market growth.” – Paul Siegfried, senior vice president and credit card business leader at TransUnion

Q1 2022 Credit Card Trends 

*Note: Originations are viewed one quarter in arrears to account for reporting lag.

Vehicle Sales Soften as Inventory Challenges Continue to Affect Auto Industry

Q1 2022 CIIR Auto Loan Summary

Dealer inventory continues to remain tight and has been further impacted by international pressures on the supply chain, including the war in Ukraine and COVID-19 lockdowns in China. Origination volumes in Q4 2021 dropped to 6.5 million – a decrease of -3.0% over the same period last year. As a result, available vehicles are moving off dealer lots at a quick rate. These issues have continued to erode vehicle affordability with the average balance of new auto loans reaching $28,415 in Q1 2022 – a YoY increase of 15.2%. This has pushed the average monthly payment of vehicle purchases (including both new and used vehicles) to $458, an increase of approximately $100 over a four year period.

Instant Analysis 

“Supply shortages have driven up vehicle prices and the shutdown of international factories will lead to a growing lack of inventory throughout the remainder of the year. On top of the increasing prices of vehicles, rising inflation will also have an impact on consumer purchasing power. To help keep monthly payments in check, we anticipate some lenders may offer consumers options such as lengthened loan terms to offset affordability challenges.” – Satyan Merchant, senior vice president and automotive business leader at TransUnion 

Q1 2022 Auto Loan Trends 

*Note: Originations are viewed one quarter in arrears to account for reporting lag.

**Data from IHSM Catalyst, viewed one quarter in arrears.

Click here for additional auto industry metrics.

Despite Uptick, Personal Loan Delinquencies Remain Below Pre-Pandemic Levels

Q1 2022 CIIR Personal Loan Summary

The serious delinquency rate (60+DPD) at the borrower level saw an uptick in Q1 2022, increasing from 2.68% to 3.25% YoY. This growth was predominantly due to the growing share of balances held by below prime consumers. However, delinquency rates remain at healthy levels and are below pre-pandemic highs. Total balances reached a milestone high of $178 billion in Q1 2022 and grew 23.8% YoY, the fastest rate of growth since Q2 2016. This growth was driven by a 12.2% YoY increase to the average balance per consumer, which reached $9,896 in Q1 2022. The number of consumers carrying a balance also grew for the third consecutive quarter (20.4 million) in Q1 2022 – just below the peak of 20.9 million consumers in Q1 2020.

Instant Analysis 

“Lenders are cautiously expanding back into the non-prime segment of the market with Q4 origination risk tier distribution very closely resembling the levels seen pre-pandemic. Inflation is putting pressure on all consumers which will likely drive continued growth across risk tiers, as consumers seek credit to finance specific purchases or for debt consolidation.  While investor demand is still driving growth, rising interest rates and uncertainty about the economy could dampen some of this growth. Lenders will continue to monitor performance of subprime and near-prime consumers across their portfolios for signs of deterioration as they continue to lend in this segment.” – Liz Pagel, senior vice president and consumer lending business leader at TransUnion 

Q1 2022 Unsecured Personal Loan Trends 

*Note: Originations are viewed one quarter in arrears to account for reporting lag.

Amid Rising Home Prices, Homeowners Poised to Increase Home Equity

Q1 2022 CIIR Mortgage Loan Summary

Rising interest rates and limited housing supply have caused the mortgage origination market to slow with volumes declining to 2.9 million originations in Q4 2021 – a -28% YoY decrease but a number still well above the 2.3 million observed pre-pandemic in Q4 2019. Rate and term refinance originations dropped dramatically by 58% YoY resulting in the continued increase of purchase share of originations for the third consecutive quarter up from 47% in Q4 2020 to 56% in Q4 2021. Tappable home equity, however, continues to grow and reached an all-time high of approximately $20 trillion in Q4 2021. Additionally, homeowners are showing sustained interest in taking advantage of the equity they have built with total home equity originations up 4% YoY and 80% from 2018 to 1.2 million. Within home equity originations, cash-out refinance decreased by only 6% YoY while HELOC grew 31% YoY in Q4 2021 and 13% YoY for a Home Equity Loan. Rising home prices have also pushed the average loan size of new mortgages to $315,543, an increase of 7% YoY. 

Instant Analysis  

“The rising interest rate environment has impacted mortgage origination volume. There is less incentive to go through a rate and term refinance and for those looking to purchase a home, low inventory and high home prices presents a challenge. A marginal reduction in new cash-out refinance volumes and a substantial increase in HELOC and home equity loan originations indicates that for those who are already homeowners, the continued home price appreciation offers an opportunity to tap into growing home equity and gain access to cheaper capital. Mortgage lenders can bolster growth in a subdued market by leveraging tools that can identify and reach consumers who are in the market to tap their available home equity.” – Joe Mellman, senior vice president and mortgage business leader at TransUnion 

Q1 2022 Mortgage Trends 

* Originations are viewed one quarter in arrears to account for reporting lag.

For more information about the report, please register for the Q1 2022 Credit Industry Insight Report webinar.