Smart Borrower Blog

Consumer Credit is Stable…For Now


May 20th, 2020 @ 3:34 PM by Amber Nelson


The number consumer credit accounts in serious delinquency was relatively unchanged in April on a yearly basis, according to a new TransUnion report, but the numbers may not represent the full situation.

During April 2020, credit card delinquencies of 90 days or more rose to 1.87%, from 1.78% the year before. Serious delinquencies on mortgages and personal loans actually fell compared to last year, dropping to 1.27% from 1.32% and 3.27% from 3.35%, respectively. Auto loan delinquencies climbed to 1.33% from 1.11%.

However, those low numbers may be skewed by the government programs and aid borrowers are currently using. Whereas almost all of those categories had well under 1% of their loans in hardship over the past year, April saw all of them jumped dramatically as COVID-19 shutdowns started to affect the nation. Auto loans had 3.54% in hardship while the number of mortgages in forbearance jumped to 5%. And only 0.01% of all credit card accounts were in hardship as of March; in May that leaped to 3.22%.

“Americans are facing challenging economic times, but it is still too early to tell the long-term implications of this pandemic for the credit markets,” said Matt Komos, vice president of research and consulting at TransUnion. “Consumers are currently performing relatively well from a credit perspective, though this is likely due to their use of federal stimulus packages, tax refunds, unemployment benefits and forbearance programs. These factors have led to improved cash flow for some consumers in the near term, but a critical component to the future of consumer credit is a better understanding of how loans that have been deferred will be repaid.”

The TransUnion report also found that some consumers are even paying down their debts now, perhaps as a way to prepare for impending financial difficulties. Credit card borrowers paid down their balances to an average of $5,437 in April, from $5,645 in March. With personal loans, borrowers paid an average of $215 extra on their balances in April.

“Forbearance and deferment programs are currently providing consumers with payment flexibility and enabling them to prioritize which credit products to pay when faced with limited resources,” said Komos. “While these programs are providing consumers with temporary relief, banks and lenders are looking for further regulatory guidance as to what next steps should be taken once stimulus packages dry up. We are likely to have a better sense of the true financial health of consumers impacted by COVID-19 in the coming months.”

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.

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