Credit card delinquency rates for new users were higher than those with established credit

Consumer credit increased by more than $20 billion by the end of 2022. (iStock)

In the face of a volatile interest rate environment, millions around the world opened their first credit products in the past two years, a new study has found.

And in the United States, the ability of many new borrowers to pay off debt was slightly less favorable than the ability of more established customers to service credit, according to the Enabling Credit Inclusion study by TransUnion.

New-to-credit (NTC) consumers who opened credit cards in the past two years showed higher credit card delinquency rates after the first six months after opening their account, compared to people with established credit and similar credit scores who opened new credit cards during the year. the same time period, the report found.

The credit card delinquency rate for near-prime NTC consumers was 3.4% compared to 2.2% for near-prime consumers with established credit. For NTC prime consumers, the delinquency rate was 1.2% compared to 0.7% for prime users with established credit.

In the United States, 5.8 million consumers opened their first credit product in 2021, the study found. And another 3.0 million became NTCs in the first half of 2022. Credit cards were typically the first credit product opened by new borrowers, TransUnion reported.

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Credit card delinquencies are expected to reach record levels in 2023

As a volatile market and price increases for basic goods remain concerns among many Americans, delinquency rates for credit card debt in the US could rise in 2023. In fact, rates could reach Credit card delinquencies at levels not seen since 2010, according to Consumer 2023. Credit Forecast by Transunion.

“Rapidly rising interest rates and stubbornly high inflation combined with fears of a recession are the latest in a series of significant challenges facing consumers in recent years,” said Michele Raneri, US vice president of research and consulting. at TransUnion, in the forecast report. “It is therefore not surprising to see significant increases in delinquency rates for credit cards and personal loans, two of the most popular credit products.”

Serious credit card delinquencies are expected to rise to 2.6% at the end of 2023, TransUnion projects. That’s an increase from 2.1% at the end of 2022. Despite these forecasts, the credit bureau expects the demand for credit to remain high until 2023. However, consumer optimism may also be high.

“Despite a challenging macroeconomic environment, a new TransUnion Consumer Pulse study found that more than half (52%) of Americans are optimistic about their financial future during the next 12 months,” TransUnion said in its forecast report.

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Americans may continue to use credit cards amid high inflation

Americans may open a record number of credit cards during 2023, according to industry experts.

“The number of new cards opened will remain significantly higher than at any time in the past decade,” TransUnion said in its forecast report.

Of the 26% of Americans who said they plan to apply for new credit products, more than half (53%) expect to seek new credit cards, according to TransUnion’s consumer pulse survey.

“It is clear that new-to-credit borrowers around the globe and in the United States will play a major role in the growth of many lenders’ books of business,” Raneri said in a statement.

If high interest debt is preventing you from saving more for retirement, you might consider paying it off with a lower interest rate personal loan. You can visit Credible to get your personalized rate without affecting your credit score.


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