Credit-card balances surge — as inflation and interest rates create ‘hardships’ for cash-strapped Americans, TransUnion says

Credit-card originations also hit a record 21.6 million in the third quarter of 2022, rising from 20.1 million a year prior, as the number of consumers with a credit card soared to 166 million, up from 159.5 million in the fourth quarter of 2021 and 152.6 million in the fourth quarter of 2019, shortly before the COVID-19 pandemic.

“Whether it’s shopping for a new car or buying eggs in the grocery store, consumers continue to be impacted in ways big and small by both high inflation and the interest-rate hikes implemented by the Federal Reserve, which we anticipate may continue for at least a few more months,” Michele Raneri, vice president of U.S. research and consulting at TransUnion, said in a statement.

“If more moderated rate hikes continue, it would be a good sign that the increases have been working, and that some relief from high inflation may be on the horizon,” she added. “Until then, we fully expect consumers to continue to look to credit products such as credit cards, HELOCs and unsecured personal loans to help make ends meet and put themselves in stronger financial standing moving forward.”

More young Americans use credit cards

And Gen Zers, or those born after 1996, saw their credit-card balances rise even faster — up 64% in the fourth quarter of 2022 compared to a year earlier, according to the credit-reporting company. Their originations, meanwhile, rose nearly 19% from the year prior.

(One caveat: Michele Raneri, vice president of U.S. research and consulting at TransUnion, told MarketWatch that it’s important to note that those consumers were starting at a lower balance level, while more of them are coming of age each day, making the increases appear more dramatic.)

Still, quarter-over-quarter growth in credit-card balances continues to be driven by subprime and near-prime borrowers, who may be hit particularly hard by rising interest rates. Delinquencies are also rising, though they were “hovering around pre-pandemic levels observed in 2019” while private-label card delinquencies were below pre-pandemic levels, TransUnion
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said in its report.

“The pressure that we’re seeing in the market — inflation and interest rates — are starting to produce hardships on people where they’re not able to pay their bills as well,” Raneri said.

It’s not necessarily surprising that this would be more evident among subprime consumers, who may be more reliant on credit to get by, Raneri said. 

Unsecured personal loans are on the rise

Unsecured personal-loan balances also hit a record $222 billion in the fourth quarter of 2022, up from $167 billion in the fourth quarter of 2021, though originations were highest in the first half of the year and began to show signs of a pull-back in the third quarter, TransUnion said. Subprime and near-prime consumers drove that growth, too, TransUnion said.

“Balances in unsecured personal loans grew an impressive 32% in 2023, despite slower growth in the back half of the year,” Liz Pagel, senior vice president of consumer lending at TransUnion, said in a statement.

“Some of the growth from earlier in the year is leading to rising delinquency rates among below-prime consumers in recent vintages, which is likely to continue,” Pagel added.  Against this backdrop, lenders are likely to continue adjusting lending criteria to grow slowly in the upcoming quarter.”