Written by: Eric Bank
Edited by: Lillian Guevara-Castro
Reviewed by: Lynn Cadet
Key Takeaways
- Credit card delinquencies decreased YoY for the second consecutive quarter—the first such trend in the post-pandemic period.
- Adjusted for inflation, consumer debt only increased 3% in five years, and there were real balance decreases in most risk categories.
- Subprime card origination jumped for the first time in eight quarters, while personal loans reached new record highs.
Appearances can be misleading when it comes to consumer credit trends, according to a recent report from TransUnion. Consumer credit balances reached $18 trillion in Q1 2025, an increase from $14.1 trillion in Q1 2020.
Inflation, however, adds another tale: Correcting for 24% cumulative inflation during the interval, real balance expansion declines to 3%.
That 3% translates into an increase in real dollars of $0.5 trillion — or $500 billion — in five years. The statistics indicate many consumers, certainly those with higher credit scores, might be spending on credit less aggressively than numbers indicate.
Most notably, consumers in the prime risk segment saw balances fall 14% in real terms since 2020 — the sharpest inflation-adjusted drop among any borrowing segment.
The reduction can be explained in part by an increase in more responsible repayment, income-based deleveraging, and stricter lending standards for middle-risk borrowers.
This new perception about debt burdens is emerging as inflation and high interest rates continue to strain family budgets. Increasing interest charges are reducing purchasing power, causing many consumers to reconsider the way they borrow and pay back.
Numbers from TransUnion reveal that, which nominal balances increased, many borrowers may not be stretched too thin. Lenders and analysts will need to dig deeper when judging credit trends in 2025.
Credit Cards Reveal a Slight Trend Toward Stability
The Q1 2025 report from TransUnion indicates the return of pre-pandemic trends in the use and performance of credit cards.
The number of consumers whose accounts were 90 or more days past due decreased for the second consecutive quarter, dropping by 12 basis points year over year to 2.43% in Q1 — the first consecutive year-over-year delinquency declines since the height of the pandemic in 2020.
One standout trend for the subprime market: Credit card originations for subprime consumers rose 2.9% in Q4 2024 compared with the same period the prior year — the first increase in eight quarters. It accompanied an increase in super prime originations of 5.3%.
Yet, the average credit lines on new cards dipped 0.3% year over year, with the increase in super prime lines offset, in part, by declining credit lines for prime and subprime borrowers.
The tightening limits may indicate lenders’ caution. Although issuers will release new cards, they seem reluctant to advance bigger lines of credit for borrowers beyond the super prime group. The risk-averse strategy minimizes the risk while still reacting to consumer demand.
Personal Loan Originations Reach Record High
Unsecured personal loan originations reached 6.3 million in Q4 2024 — a 26% increase year over year — and a new high, reports TransUnion. All risk tiers played a part in the increase, with super prime borrowers, whose originations rose 29% from the previous year, leading the charge.
The trend is accompanied by a turn toward less risky borrowers, which resulted in a drop in the level of delinquencies in Q1 2025.
Personal loan total balances for Q1 2025 reached $253 billion — a 3% increase from year-ago figures — although the increase was all from above-prime segments.
Some 24.6 million consumers currently hold personal loan balances, a 5% increase from year-ago figures, yet the average balance only increased among above-prime consumers.
Lenders seem to be focusing their portfolio on low-risk borrowers while total demand increases. Subprime borrowers can still experience tighter approval or reduced loan amounts, as institutions attempt to balance expansion with the quality of credit.
Subprime Implications: Demand Continues, Caution Remains
The rebound in subprime origination on cards and the expansion in personal loan accounts indicate sustained demand among subprime consumers. Yet the absence of growth in lower credit tiered average balance indicates tighter credit conditions or constrained usage.
Meanwhile, inflation-adjusted balances also indicate that people in most credit risk categories are handling their debts without substantially increasing their debt burdens.
It could be an indicator of better budgeting and repayment habits, particularly in light of increasing wages and steady employment patterns in the past few years.
TransUnion EVP Jason Laky views the inflation-adjusted trends as an indicator of consumer responsibility. He said the latest analysis yields a portrait of credit usage that goes beyond the simple increase in total balances.
When the recent experience of higher inflation is adjusted for, the increases in balances imply consumers in most risk brackets aren’t stretched too far.
He further observed that income increases since 2019 have allowed consumers to manage their responsibilities, even in the midst of economic stress.
Subprime lenders may interpret these findings as signs that there is underlying demand — but they should proceed cautiously, as the expansion still remains focused in the lowest-risk brackets.
With nominal debt balances increasing and flat or decreasing inflation-adjusted balances for many consumers, lenders and observers alike will need to dig deeper when evaluating trends in borrowing in 2025.
