U.S. consumers show an appetite for borrowing but their balances and late payments are low, a report from TransUnion shows
Credit card users are on track for a jolly holiday, and without too big a debt hangover once the eggnog is all gone.
That’s the take-away in a new report from the credit bureau TransUnion, which tracks the financial habits of more than 200 million U.S. consumers.
More people are getting cards and debt is inching up, TransUnion found in its quarterly Industry Insights Report. But consumers’ balances and payments show that we’re managing our credit pretty well as we head into the big spending season.
“The consumer credit market seems to be healthy and well-functioning,” said Ezra Becker, TransUnion vice president of research and consulting. “There’s room for growth in the marketplace still — I think we’re well poised.”
The study found that total bank card debt rose about $30 billion from a year ago, at the end of the third quarter. But the average person’s credit card balance is actually down slightly, by 0.3 percent to $5,232.
That head-scratching result makes sense when you consider that more people have cards than a year ago — about 5 million more. So the higher total debt is spread across more individuals. The people getting cards are the ones most likely to use their new credit to boost their consumption, as originations step up for people with less-than-prime credit scores, TransUnion said. Over the year, subprime cardholders increased by 25 percent, helping swell the total number of cardholders to 130.8 million by the end of the third quarter.
“Most of our growth in accounts has come from the subprime zone,” TransUnion Senior Vice President Paul Siegfried said.
You probably don’t need a banking expert to tell you that the fourth quarter of the year — which includes the holiday shopping season — sees card balances balloon more than other times. Not surprisingly, the first quarter of the New Year is the worst time for delinquencies, as holiday bills come due.
But if you’re like the average cardholder, there’s hope that this year’s bills won’t be too heavy a burden.
Serious delinquencies on cards are edging up already, reaching 1.43 percent in the third quarter. That means that for every $100 in balances, $1.43 is past due 90 days or more. But this figure looks worse than it is. On a per-account basis, fewer accounts are behind on their payments than before, Siegfried said.
“The lenders appear to be managing to this,” he said.
For one thing, lenders are keeping a grip on credit limits. New credit lines for subprime borrowers were on average $995 in the second quarter of 2015, TransUnion said, up a scant 0.7 percent from a year earlier. The company looks back an extra quarter on origination data because of possible lags in reporting by banks.In any case, the delinquency rate is close to record low levels, about half as high as the rate recording in the third quarter of 2009.
A slight increase in delinquencies “might not be a bad thing,” Becker said. Some extra delinquency is bound to occur as more subprime borrowers get access to credit.
“The goal of lenders is not to minimize delinquency,” Becker said. “If you want to eliminate delinquency just stop lending — the goal is to find a balance.”
Impact of a rate increase
This holiday season will have one big difference than past ones, as rising interest rates are expected to hit card balances. The Federal Reserve is poised to raise rates in December, most analysts expect, marking the first time that’s happened in almost a decade.
The increase will drive up APRs on credit cards, but the size of the hike isn’t likely to throw a wrench into household finances. Historically the Fed moves rates a quarter of a percentage point at a time. At the average $5,223 balance, “You’re talking about a dollar a month impact to the consumer,” Siegfried said. The plunge in gas prices has had a much bigger wallet impact — in a positive direction, he said. According to the AAA, U.S. consumers are collectively spending $350 million less per day on fuel than a year ago.
Consumer debt picture
In other findings from the third-quarter look at consumer debt:
- The highest card delinquency rates were in Atlanta, 1.93 percent; Miami, 1.91 percent, and Houston, 1.63 percent. The lowest rates were in San Francisco, 0.88 percent; Boston, 1.11 percent; and Chicago, 1.29 percent.
- Auto loans were up 3.4 percent over the year to an average $17,942 per borrower, while the 90-day delinquency rate held steady at 1.16 percent.
- Mortgage debt per borrower was $189,039, up 1.5 percent from a year ago, while the 90-day delinquency rate was 2.40 percent, down 28.5 percent.