U.S. credit card balances are growing, especially among consumers with less-than-average credit scores — a possible indication of loosening standards across the industry.
TransUnion just reported 359.64 million credit card accounts as of the first quarter 2015, up from 344.53 million in the first quarter of 2014. New accounts increased to 14.41 million by the end of the fourth quarter of 2014, up 7.1 percent from 13.46 million a year earlier.
TransUnion’s latest card report also found that consumers in the “subprime risk tier” (those with a VantageScore credit score lower than 601) represent a larger portion of all new credit card originations. In the fourth quarter of 2014, that group represented 16.5 percent of originations, a 26.7 percent year-over-year increase from 13 percent a year earlier.
Overall, non-prime consumers (generally, borrowers with below average scores) now make-up 35.6 percent of total originations in the credit card market. However, the average balance per consumer for non-prime tiers continues to shrink year over year, as it has since 2010, with a year-over-year reduction of 5 percent in subprime and 2 percent in near prime (those with a VantageScore credit score between 601 and 660).
Despite significant growth in non-prime originations over the past year — both subprime and near prime together — total credit lines within the non-prime categories of borrowers remain at 9.2 percent in the first quarter of 2015, consistent with the first quarter of 2014. This is the result of a continuous reduction in average credit lines within this group of consumers.
“As the number of credit card accounts continues to rise, we’re seeing the non-prime population take a larger share of new credit card originations – showing an increase of 5.1 points since last year,” said Nidhi Verma, director of research and consulting in TransUnion’s financial services business unit.. “While increased non-prime originations indicate lenders may be loosening standards for providing credit to this population, the decreased average credit lines point to functioning risk management strategies.”
TransUnion’s report also found that the credit card delinquency rate (the ratio of borrowers 90 days or more delinquent on their general purpose credit cards) remained steady at 1.37 percent in the first quarter of 2015, unchanged year over year. Average credit card balance per borrower declined from $5,168 in the first quarter of 2014 to $5,142 in Q1 2015.
“We generally see a decline in balances in the first quarter as consumers pay down balances following the holiday season,” said Verma. “However, the credit card market continued its momentum on balance growth, which began in Q2 of last year, with 4.6% year-over-year growth in the first quarter of 2015.