Credit Card Lenders Experienced Banner Year in 2021 — Why It’s Good News for Higher-Risk Applicants 

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With consumer credit performance maintaining healthy levels across auto, credit card, personal loans and mortgages, lenders continued to ramp up new account origination growth in the non-prime segment of the market near the end of 2021, according to a TransUnion report.

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The Transunion Q4 2021 Quarterly Credit Industry Insights Report (CIIR) also found that loans to non-prime borrowers increased, while accounts originated during the pandemic in 2020 continued to perform as well or better when compared to loans from previous years.

During the heart of the pandemic, lending to below prime consumers was suppressed, but the situation turned around briskly in 2021, according to the report. Lenders shifted as the economy expanded and consumer credit was in a healthy state, ramping new account origination growth in the non-prime segment. In particular, the credit card market saw a very high rate of new account growth in Q3 2021 with a record 20.1 million originations, 9 million of which were to non-prime consumers, according to the report.

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In turn, this translated in overall card originations in the quarter growing 63% year-over-year, while non-prime originations increased 75% year-over-year, from the 5.1 million non-prime originations that occurred in Q3 2020.

Charlie Wise, senior vice president of research and consulting at TransUnion, told GOBankingRates that non-prime lending in the credit card market rebounded strongly in Q3 2021 and that year-over-year  growth rates were likely so high due “to the fact that card issuers had pulled back on this consumer segment during the height of the pandemic when there was more uncertainty in the market.”

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The report note that there “was a great deal of uncertainty in the initial months of the pandemic,” and many lenders opted to take a wait and see approach. In addition to the uncertainty, there were questions about the jump in consumers in loan accommodation programs, and how those consumers would perform once they exited those programs.

“Toward the end of 2021, the majority of accommodation programs have expired and lenders have seen that consumers continue to perform well on their credit obligations,” the report noted.

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Wise added that Transunion expects lending to this segment to continue so volumes are in line with pre-pandemic levels.

In addition, despite recent upticks in delinquencies in the most recent quarter, serious delinquency rates also remained near or below pre-pandemic levels in the wake of expired forbearance programs, which has continued to restore lender confidence.

Wise explained that key drivers of low delinquencies included forbearance programs and government stimulus programs which helped keep them low during the height of the pandemic.

“Now that the majority of forbearance programs have expired, consumers have resumed making payments which is a sign of a healthy economy. This has restored lender confidence which has helped lenders expand back into the non-prime segment,” Wise added.

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Finally, the report noted that card balances are showing a slight improvement compared to a year ago, with average balances still below what was observed pre-pandemic.

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“Balance growth that has occurred has mostly come from super prime consumers and as such, card issuers are aligning their growth strategies with these behaviors by offering higher credit lines to these consumers,” according to the report. “Card issuers are also tapping into new consumer risk segments to ramp up growth. Originations to non-prime consumers are increasing and consumer performance has remained stable, especially from a historical perspective.”

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.

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