People are using credit cards more than ever, according to a new report by TransUnion that found that 416 million credit cards are in play in the market with 175 million consumers using them during the first quarter of this year. The future trajectory for credit cards seems to be on an upswing.
Yet with all of this activity, the report also found that delinquency rates increased slightly. There was not a dramatic upswing, but they did go up. Serious credit card delinquency rates per borrower went up during the first quarter of 2018, hitting 1.78%, which is up from 1.69% during the same time period last year. That said, this increase is still lower than the 10-year first quarter average of 1.91%.
Yet even with this increase in delinquencies, credit cards remain popular with consumers and the banks are making them available. TransUnion believes there are a variety of factors that make this possible.
“Though delinquency rates are certainly rising, there are several reasons we do not believe this is a worrisome trend at this juncture,” said Paul Siegfried, senior vice president and credit card business leader at TransUnion.
“First, credit card issuers have been relatively conservative over the last five quarters, issuing more credit to lower-risk consumers compared to higher-risk consumers. Second, the credit limits they are extending to consumers in most risk tiers are generally lower than those they had issued in prior years. Finally, we believe it’s a positive sign for the economy that more consumers have access to credit and that delinquency rates while growing, are doing so at a slow pace and remain below levels observed immediately post-recession,” he added.
Super prime and prime plus borrowers help with growth
Growth in the credit card market, according to the report, was due to an upswing in accounts by super prime (+4.9%) and prime plus (+3.2%) borrowers, with banks and lenders bringing down their level of risk by taking on fewer new accounts by subprime and near-prime borrows. That said, they have also actively decreased credit lines across all borrower tiers, thereby minimizing risk on that level as well.
When it comes to growth, Gen Z and Millennials showed the greatest level of growth, with Gen X borrowers carrying the biggest balances when compared to their younger and older counterparts.
Credit card growth offers promise for other sectors
TransUnion sees the continued growth of the credit card market as an indicator that other sectors will do well, too.
“Credit cards are a vital part of the consumer credit economy, and their continued good performance bodes well for other credit products such as auto loans and mortgages. It’s also a good indicator of the product’s popularity that the youngest generations continue to grow their card balances and generally appear to manage their debts effectively,” said Matt Komos, vice president of research and consulting at TransUnion.
“In line with our forecast for the year, the consumer credit market continues to perform well, and we do not see any indicators of concern in the short- or mid-term,” he added.