Decade-high credit card, personal loan delinquency rates coming in 2023: TransUnion

The rate at which U.S. consumers miss payments on credit cards and personal loans is expected to surge to levels not seen since 2010, according to TransUnion's credit forecast.

TransUnion forecasted serious credit card delinquencies to rise to 2.6% at the end of 2023 from 2.1% at the close of 2022. Unsecured personal loan delinquency rates will increase to 4.3% from 4.1% in the same timeframe. 

Despite the forecasted growth in late credit card and personal loan payment rates, serious auto loan delinquency rates are expected to decline modestly to 1.90% in 2023 from 1.95% in 2022.

The uptick in delinquencies follows two years of aggressive loan growth, the report said.  

"Rapidly increasing interest rates and stubbornly high inflation combined with recession fears represent the latest in a series of significant challenges consumers have faced in recent years," Michele Raneri, TransUnion vice president and head of U.S. research and consulting, said. "It's not surprising then to see pronounced increases in delinquency rates for credit card and personal loans, two of the more popular credit products." 

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Consumers are well-positioned to handle challenges ahead

Over half (52%) of U.S. consumers said they are optimistic about their financial future during the next 12 months despite facing a tighter lending environment and less access to credit, according to TransUnion's recent Consumer Pulse study.

Twenty-six percent of respondents said they planned to seek new credit or refinance next year. Of those, 53% plan to apply for a credit card, more than double the volume relative to all credit types, the survey said.  

Auto lending is expected to rebound in 2023 with originations forecasted to increase to $28.8 million from $27.5 million in 2022. Additionally, Home equity originations are expected to increase by 24% in 2023 as homeowners look to tap the sizable amount of available equity they have in their homes. 

Credit card originations are expected to drop to $80.9 million in 2023 from $87.5 million in 2022 as lenders tighten requirements and credit becomes harder to obtain, according to TransUnion. Despite the slowdown, the number of new cards opened will remain much higher than at any time in the last decade. 

Personal loan origination volumes are also expected to slow to $19.3 million, falling back to more normal levels after unusually high volumes in 2022, TransUnion stated. 

"We expect demand for credit to continue to be high with lenders positioned well to meet it," Raneri said. "While unemployment is likely to rise next year, it should remain relatively low, a key element for a healthy consumer credit market."

If you have taken on credit card debt and need help paying it down, you could consider consolidating it with a personal loan. You can visit Credible to compare multiple personal loan lenders at once and find the best interest rate for you.

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Economists caution of recession ahead

Fears over an economic slowdown are the next challenge for the U.S., economists said. 

Bank of America (BofA) economists forecasted that a recession may come in the first quarter of next year and could last through the third quarter of 2023. 

The prediction comes as the U.S. gross domestic product (GDP) showing signs of declining. 

Fannie Mae's Economic and Strategic Research (ESR) Group expected a contraction of 0.6%, down one-tenth from its previous forecast, in gross domestic product (GDP) growth in 2023, according to its latest economic forecast.

"The economy continues to slide toward a modest recession, which we anticipate will begin in the new year, with housing leading the slowdown," Doug Duncan, Fannie Mae's Chief Economist, said. "Higher interest rates have ignited the typical reduction in residential fixed investment, which historically has led into either an economic slowdown or recession."

"From our perspective, the good news is that demographics remain favorable for housing, so the sector appears well-positioned to help lead the economy out of what we expect will be a brief recession," Duncan continued.

If you're struggling to manage your finances in the current economy, consider paying off high-interest debt with a personal loan at a lower interest rate and potentially lower your monthly payments. You can visit Credible to compare personal loan rates from multiple lenders at once and find the rate that's right for you.

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