U.S. credit-card debt rose by nearly 20% in the first quarter when compared to a year earlier, hitting $917 billion as consumers tried to cope with higher prices, first-quarter data from TransUnion released Thursday shows.
Balances for unsecured personal loans also smashed records at $225 billion, rising about 26% in the first quarter from a year ago.
Average credit-card debt per borrower hit $5,733 in the first quarter, while the average personal-loan balance per borrower reached $11,281 — or nearly 16% of the U.S. median household income of $70,784, TransUnion said.
Though consumer-price increases are cooling off from last year’s spike, certain big expenses like rent and car prices are still far above pre-pandemic levels, potentially putting some families in a bind.
Credit-card originations, meanwhile, continued to remain elevated at the beginning of this year at 20.64 million, even as companies appeared to pull back from opening new subprime accounts amid higher delinquencies, TransUnion said. The share of subprime consumers carrying card balances also dropped to 10.2% in the first quarter from 10.9% at the end of 2022, “ending a trend of seven consecutive quarters of growth for the subprime segment,” according to TransUnion.
“We have continued to see increases in both the balances as well as originations,” Michele Raneri, vice president of U.S. research and consulting at TransUnion
TRU,
told MarketWatch. “Originations have also exceeded 20 million in five of the past six quarters. Consumers are continuing to use credit as they figure out this post-pandemic economy and figure out how they’re going to grow during this inflationary time period.”
“‘We have continued to see increases in both the balances as well as originations.’”
Raneri noted that since the average credit score has increased during the pandemic, more people might be considered “super-prime.” That may help explain why TransUnion’s first-quarter data showed that, in contrast to subprime consumers, 41.8% of super-prime consumers were carrying a balance, up from 40.6% the previous quarter. Total lines of credit also hit $4.4 trillion in the first quarter, up $391 billion from a year ago, in a trend largely driven by an increase among super-prime borrowers, TransUnion said.
Still, the impact of credit-card and personal-loan debt will likely be unevenly felt among U.S. consumers. While credit-card balances have been creeping toward $1 trillion nationwide, interest rates on cards have soared, too, making that kind of debt even more expensive: Bankrate recorded an average rate of 20.33% as of Wednesday. Rates can be even higher for consumers with lower credit scores, who are more likely to be Black and Hispanic.
To be sure, first-quarter credit card balances were down slightly by 1.5% from the fourth quarter, when debt levels are usually higher due to holiday shopping. The Federal Reserve Bank of New York reported that at the end of last year, credit-card balances hit $986 billion.
“People need to recognize what their spend is compared to their budget,” Raneri said. “If you look back at the pandemic, people had less that they were purchasing, they had stimulus [checks], and so they had lower balances than usual — and they had really low delinquencies because they were able to pay their bills off well. Now, as we emerge out of that — and I feel like we’re getting to the point of it coming back to being normal — consumers are looking at how to use credit.”
Consumers’ accumulated personal savings hit an estimated peak of about $2.1 trillion through August 2021 as the federal government pumped money into expanded unemployment insurance, extra child tax credits and stimulus checks, but about $1.6 trillion of that has since been drawn down, researchers at the Federal Reserve Bank of San Francisco said this week.
Meanwhile, overall credit-card balances were already almost 20% higher in this year’s first quarter than the same period in 2022, TransUnion said, with the average balance per consumer being up by 14.4%.
Balances on unsecured personal loans increased by a far higher 26.3% on an annual basis in the first quarter to reach their highest level on record, though annual growth rates have now been slowing down for two consecutive quarters, “which may be a sign that lenders are showing more scrutiny in making underwriting decisions,” according to TransUnion.
Though all “risk tiers” have seen double-digit growth in personal-loan balances in the past year, subprime consumers were leading the pack with a 40% rise in the first quarter compared to a year ago, trailed only by super-prime consumers, who saw their balances increase by 34% in the same period. Subprime consumers have also seen the most significant decline in originations, down 18.2% in the first quarter from a year earlier, TransUnion said.
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