Sub-Prime Borrowers Gaining More Access to Credit as Lending Continues to Improve, Equifax Reports
ATLANTA, March 29, 2012 /PRNewswire/ -- Sub-prime origination growth across all lending sectors continues with notable increases, according to recent U.S. consumer data from Equifax's March National Consumer Credit Trends Report and CreditForecast.com, a joint product of Equifax and Moody's Analytics.. The report shows origination growth across multiple vertical markets through 2011.
The number of bank credit card accounts increased from Dec. 2010 to December 2011, a product of lenders more aggressively seeking new customers and consumers increasing demand for new credit.
New credit in 2011 ($782 billion) remained below pre-recession levels, but gained more than 10% over 2009 and 2010 levels ($695 and $709 billion, respectively).
Increases in credit limits were also seen in 2011, as total retail credit card limits increased 6% year over year from Dec. 2010 to Dec. 2011* and total bank credit card limits jumped 24% from Dec. 2010 to Dec. 2011.** Consumer finance credit limits also saw a comparatively modest improvement of $1.2 billion from Dec. 2010 to Dec. 2011.
Total consumer debt in the U.S. currently stands at $11 trillion, a decrease of 11% from its peak in Q4 2008 at $12.4 trillion. The drop is driven by a nearly 12% drop in home financing balances, which fell from $9.8 trillion in 2008 to $8.7 trillion in February 2012. Non-mortgage and non-student consumer debt balances also fell sharply (22%) from the early 2008 peak of $2.05 trillion. After reaching a post-recession low of $1.60 trillion in May 2011, consumer debt balances have risen about 2%.
"The evidence of increased lending to sub-prime consumers demonstrates banks' ongoing efforts to grow lending by providing credit opportunities to more consumers," said Equifax Chief Economist Amy Crews Cutts. "Year-over-year results show borrowers are taking advantage of the new opportunities and seeking to diversify their financial activity, which is building momentum toward economic improvement."
Other notable findings from Equifax' March Credit Trends Report include:
Bank Credit Cards
- Lending to sub-prime consumers showed a 41% increase from 2010 to 2011 as sub-prime borrowing hit a four-year high in Dec. 2011 with 1.1 million new bank credit cards issued.
- New sub-prime card limits grew 55% from 2010 to 2011. At $12.5 billion in 2011, bankcard limits are at their highest level since 2008 ($27.4 billion).
- Bank credit card growth continues, but is still well below pre-recession levels. In 2011 39.9 million bankcards were opened, an 18% increase from 2010 and the highest total since 2008.
- The increase in total bank credit card originations was accompanied by a 31% increase in total credit limits from 2010 to 2011. 2011 marked the first time in over four years that credit lines increased, reaching $163 billion.
Retail Credit Card
- In early 2009, the share of retail card balances held by low-risk borrowers started increasing markedly. Today, low-risk borrowers hold just below 42% of retail card balances, followed by high-risk borrowers who now make up nearly 26% of balances outstanding.
- From 2010 to 2011 there was a 4.7 percentage point increase in retail card originations to sub-prime borrowers, making up 31% of 2011 retail credit card originations.
- Retail credit card limits grew almost 6% in 2011, totaling $60 billion for newly originated cards.
- New retail card tradelines in December 2011 showed a 4% increase over the same month a year ago, adding 4.2 million new accounts.
- The decline in total retail card limits appears to be nearing a bottom as delinquency rates and write-offs show continued declines.
- Subprime borrowers are gaining share in new auto loan originations, especially in the auto finance segment where they now make up over 46% of the market; prime borrowers make up a larger share (83%) among auto bank originations, but have also lost share over the past two years to subprime borrowers.
- New auto finance loan amounts increased $11.6 billion from 2010 ($164.6 billion) to 2011 ($176.2 billion), hitting the highest originations level since 2007 ($221.1 billion).
- Similarly, auto bank loan amounts were up 14% from 2010 ($162.1 billion) to 2011 ($187 billion), nearly reaching the levels seen pre-recession.
- The number of new auto loan originations increased over 2% from 2010 ($17.3 million) to 2011 ($19.6 million). The 2011 figure surpasses 2008 totals and is 9% lower than the six-year high reached in 2007 of $21.5 million.
- Severe delinquency rates for auto finance loans are worse than for auto bank tradelines, however both rates have fallen back to pre-recession levels.
- In 2011, total new auto loan originations hit a 6-year high for the month of December, although total originations for the year were at a 4-year high.
- New consumer finance loans originated in 2011 (20.2 million) were up over 4% from 2010 (19.4 million), and the highest since 2008 (24.8 million).
- Consumer finance delinquency rates are on the decline, dropping to 7% in February 2012, the lowest level since July 2007.
- From 2007 to 2010, consumer finance loan originations were falling, but the trend reversed in 2011, with $1.2 billion of new loan amounts added.
- New consumer finance originations for the month of December reached $5 billion in 2011; the last time December originations were that high was in 2008 ($5.1 billion).
- Consumer finance loans have typically served high–risk consumers, but in February 2011, low-risk borrowers became dominant in the segment; as of February 2012, just over 33% of consumer finance loans (by dollars) were to high-risk borrowers while 39% were to low-risk borrowers.
- Student loans cater to borrowers who have little current income and who are generally young in their credit histories; for this reason, new student loan originations are dominated by higher-risk borrowers, although the share has shifted slightly over the past two years to low-risk student borrowers.
- As of December 2011, nearly 66% of newly originated student loans were held by higher-risk borrowers.
- Among total outstanding student loan balances, low-risk borrowers have seen declining share though they still dominate; as of February 2012, low-risk borrowers accounted for 37% of outstanding student loan balances, while high-risk student borrowers accounted for almost 35%.
- Average loan size for new student loans fell in December 2011 relative to the same time a year ago, but total new student loan debt per consumer rose to a 5-year high; December 2011 average loan size decreased 8% ($6,850 to $6,333) relative to December 2010, while total student loan debt per consumer increased 3% (from $9,322 to $9,558).
* Dec. 2010 ($56.7 billion) to Dec. 2011 ($60.0 billion)
** Dec. 2010 ($124 billion) to Dec. 2011 ($163 billion)
Equifax and Moody's Analytics are leaders in the collection, analysis, and forecasting of household credit trends.
CreditForecast.com, a joint product of Equifax and Moody's Analytics, provides insight into how local economies affect consumer credit behavior and performance. CreditForecast.com provides history and forecasts for a wide range of household credit, economic, and demographic variables across targeted geographic markets throughout the U.S. — enabling customers to examine, segment, and stratify credit risk and economic data. CreditForecast.com covers all major consumer product lines including first mortgage, home equity, auto loans, bankcards, student loans, consumer finance and retail. For more information, please visit www.creditforecast.com, email email@example.com or call +1.866.275.3266
About Equifax, Inc.
Equifax is a global leader in consumer and commercial information solutions, providing businesses of all sizes and consumers with information they can trust. We organize and assimilate data on more than 500 million consumers and 81 million businesses worldwide, and use advanced analytics and proprietary technology to create and deliver customized insights that enrich both the performance of businesses and the lives of consumers.
Headquartered in Atlanta, Equifax operates or has investments in 18 countries and is a member of Standard & Poor's (S&P) 500® Index. Its common stock is traded on the New York Stock Exchange (NYSE) under the symbol EFX. For more information, please visit www.equifax.com.