Consumers are borrowing more money than they have in years, and they are making their payments on time, says a new report. Analytics show that credit growth remains strong in 2014, with bank-issued credit cards, home equity lines and auto loans proving particularly popular with borrowers.
Analyzing the data generated by credit applications to study this growth allows businesses to compare credit applications longitudinally. This makes it easy to identify seasonal and annual trends, revealing which types of credit are popular with borrowers and offering further business opportunities for lenders.
Strong credit growth in three areas
New bank-issued credit cards lead the pack in terms of growth, according to a recent Equifax National Consumer Trends Report. Bank-issued credit cards saw a 28.5 percent increase in the total balance of new credit issued between January 2013 and January 2014. This is about 10 percent more than home equity revolving credit, which grew 18.4 percent during the same time period. According to the report, auto loans saw a 19.8 percent increase in borrowing.
Why the increase? Amy Crew Cutts, Chief Economist at Equifax, has a couple of theories:
“Spring is here, and consumers’ desire for credit appears to be rising alongside the mercury,” says Crews Cutts in an Equifax press release.
Crew Cutts states that in January 2014, auto loan originations were almost 20 percent higher than they were at the same time last year, despite low numbers of new and used vehicle sales during the month. ”This suggests that consumers are responding positively to the generous terms and greater credit availability in the auto space,” she says. “Credit card and Home Equity Revolving Lines of Credit originations were also up sharply over the previous year, further signaling that not only are consumers interested in credit, but that banks are more willing to offer it.”
Short-term credit appetite
The Consumer Trends Report states that as of March 2014, there are more than 320 million outstanding credit card accounts. Also, in March 2014 the total credit card balance reached a 55-month high of $2.5 trillion. While borrowers are opening accounts and using them, they are also doing a better job of making their credit card payments on time. During the 12-month period ending March 2014, write-offs as a percentage of outstanding credit card accounts decreased by 13.2 percent.
More home equity lines and lower balances
When it comes to home equity lines, analytics reveal a slightly different picture of credit growth. Though the number of new loans as of January 2014 increased by 10 percent year over year, the average balance decreased by 6.5 percent, indicating that, while more homeowners are opening home equity lines, they use them less. They are also doing a better job of making their payments: 69 percent of severely delinquent home equity line balances are from loans that originated between 2005 and 2007.
Auto loans booming
Based on the big data used to generate the report, people are borrowing money to finance new car purchases, and this number has been increasing from month to month in 2014. In January, 1.8 million people applied for new loans — up 4.7 percent from the same time last year. In March, the total balance of outstanding auto loans hit a nine-year high at $874 billion dollars — 10.3 percent higher than last year.