Written by: Eric Bank
Edited by: Lillian Guevara-Castro
Reviewed by: Adam West
Key Takeaways
- According to TransUnion’s Q2 2025 Consumer Pulse survey, American borrowers resort to credit as a solution to their tariff concerns, but the younger age groups drive future financial optimism.
- Credit scoring by lenders has grown in precision as the student loans fall into arrears and the Buy Now, Pay Later programs continue to soar.
- Secure employment alongside stable compensation accounts for the key driver that helps regulate rates of delinquency as well as sustain favorable underwriting results.
Despite a small increase in financial pessimism, 37% of American consumers said they planned to apply for new credit or refinance existing credit in the next year, according to the TransUnion Consumer Pulse Survey for the second quarter of 2025.
For subprime lenders, the data points to a window of opportunity, but also a need for caution and smarter underwriting. Consumers are still seeking credit — but their confidence is wavering, which raises both potential and risk.
Financial pessimism hit 27% for Americans, but 55% said they are hopeful for better days during the upcoming year despite the higher level of economic uncertainty.
TransUnion’s Charlie Wise maintains that the consumer base remains on pace through many financial challenges. He said that the American financial outlook is the same as the previous year — consumers enjoy financial confidence due to the current strong jobs market and continued pay increases.
Unemployment remains level at 4.2%, and the domestic savings rate is around 5%.
Credit Binges Fueled by Tariff Fears
Survey respondents revealed concerns over how their household finances would be effected by current or future tariffs, including higher prices, product availability and higher interest rates which would require them to seek additional liquidity.
The survey datasets during Q2 disclose tariff-anxious respondents had a greater desire for fresh credit — 37% compared with 30% for other respondents.
Anxious borrowers prefer the use of flexible financial products like increases in credit limit, personal loans, and Buy Now Pay Later (BNPL) offers. The optimal approach for everyone is having liquid assets equal to three to six months, according to Wise.
Some folks access emergency funds through cards and BNPL products to preserve their own resources.
Segments on Optimism by Generation
The TransUnion survey found that the sense of optimism among younger generations is higher than that of older generations. According to the survey, 67% of the Gen Z and 64% of millennials survey participants said they are positive about their financial future in the upcoming year, but baby boomers have just 43% confidence.
Wise thinks that younger generations don’t know from personal experience what a recession is because the young workers never had to work under the type of inflation the older generation has grown up in.
“They are at the start of their careers,” said Wise. Younger salaried workers insist on their careers advancing along with their wages and promotions.
The fixed-salary baby boomers must plan against inflation but have little chance of enjoying pay increases.
Segmentation of the Risk of Student Loan Defaults
Delinquent student loans affect 6 million borrowers, according to the Federal Reserve Bank of New York, and more than half of newly delinquent borrowers were already considered non-prime credit borrowers. The credit scores of borrowers who used to have higher ratings dropped because of the delinquent repayments.
The situation is tough on the lenders who assess creditworthiness.
Wise was of the opinion that the lenders should avoid treating all the defaulters of student loans as one entity for the purpose of evaluation processes.
The delinquency risk varies between the borrowers who pay their credit card payments on time but default on student loans and the borrowers who always display subprime credit behavior. The company has developed tools that help issuers perform better assessments of these customers.
Decoding the Credit Card Universe
Credit card acquisition involves segmentation analysis, from Wise’s point of view. “We’ve seen for the super prime, the highest tier of consumers, that their balances … have increased about 15% since 2019,” he said.
The customers who go for better rewards and not the credit usage are the ones who are opting for the credit cards. “It’s not about need, it’s about benefit.”
Average credit card balances have risen across all tiers, but TransUnion data shows subprime and near-prime borrowers tend to carry higher revolving balances than super-prime users, reflecting different credit usage patterns.
Credit usage and balances increase across all consumer tiers.
Performance improved in these narrowly defined market buckets. Wise said that delinquency performance increased over the years 2022 and 2023 until the lending strategy was revised by the lenders which resulted in considerable improvements over the recent past.
The subprime cardholders have conservative but consistent credit policies from their card issuers. Wise advocated for lenders to adopt an approach that includes curtailing credit limits and monitoring payment habits before they grant additional access or withdraw from the market depending on the outcomes.
BNPL is a credit wildcard. The BNPL sector has been compared by Wise to a black box. Credit agencies currently receive reporting from BNPL providers but their reporting remains only partial. It is possible to use BNPL data when performing risk analysis and customer segmentation, according to Wise.
Some customers use BNPL when their cash runs low or their credit card limit is maxed out. “That’s the difference,” says Wise. TransUnion can analyze BNPL records in an attempt to help lenders determine whether BNPL usage is an indicator of financial tension or good spending habits.
