Credit Risk Declining for Sixth Straight Quarter; Driven by Fewer Delinquent Consumers

TransUnion’s proprietary Credit Risk Index (CRI) declined for the sixth consecutive quarter as consumers continue to pay off their outstanding debt and maintain low delinquency levels on their credit obligations. Compared to one year ago, the 2Q2011 CRI for the U.S. decreased 1.9 percent to 121.22. The Credit Risk Index is benchmarked to 1998 consumer credit risk levels and measures changes in consumer credit risk within various market segments.

“The lengthy, broad and steady decline in the Credit Risk Index, which reflects declines in consumer delinquency and debt levels, has placed the consumer credit market on a firmer footing,” said Chet Wiermanski, global chief scientist at TransUnion. “This responsible use of credit has given some lenders confidence to ease lending standards and invest more in the acquisition of new credit customers.”

According to TransUnion’s TrendData, for the past several quarters there has been increased lending activity among banks and finance companies across revolving and installment loan categories. “Increases in the percentage of consumers with new accounts with generally higher credit limits, coupled with lower utilization rates for revolving account types reflect a healthier balance of risk,” continued Wiermanksi.

Except for Massachusetts and Vermont, every state experienced at least a 0.76 percent decline in their credit risk. The 234-basis point quarterly decrease (121.22 from 123.56) at the national level was the largest decline since the first quarter of 2007. This decline places the CRI at a level not witnessed in the U.S. since the third quarter of 2008. The index has declined by 845 basis points or 6.5% since reaching its peak of 129.67 during the fourth quarter of 2009.

TransUnion’s Total Inquiry Index (TII), which measures the demand for consumer credit benchmarked to consumer-initiated credit inquiries levels observed in 2000, increased to 68.93 in the second quarter 2011. Although the demand for credit remains low when compared to 2000 benchmark levels, the annual increase in the TII during the second quarter of 2011 was 0.7 percent. TII levels increased across most major categories monitored, especially inquires from finance and sales finance companies. Lending activity from these sectors generally reflects sales of consumer durable goods such as electronics, appliances and furniture.

“Lenders are making new credit available to an increasing percentage of consumers, who in turn are conservative with their use of it,” said Wiermanski. “Continued responsible use and repayment of credit by consumers during the rest of 2011 should modestly improve the CRI to levels witnessed just prior to the early stages of the credit and mortgage crisis,” added Wiermanski.

Q2 2011 CRI/TII Statistics

• The CRI now stands 5.04 percent lower than it did at the end of the second quarter of 2010.
• For the third quarter in a row, 48 states and the District of Columbia experienced appreciable declines in their credit risk indices, signaling that a broad improvement in consumer credit conditions is taking root.
• Despite experiencing a 4.39% decline in the CRI, Mississippi (155.73) has the highest CRI, followed by Nevada (154.72) and Texas (152.56).
• States with the lowest Credit Risk Index continue to be concentrated in Upper Midwest and New England where seven of the ten lowest CRIs exist. The three states with the lowest CRIs are North Dakota (77.87), Minnesota (86.38) and Vermont (90.06).

The source of the underlying data used for this analysis is TransUnion’s Trend Data, a one-of-a-kind database consisting of 27 million anonymous consumer records randomly sampled every quarter from TransUnion’s national consumer credit database. Each record contains more than 200 credit variables that illustrate consumer credit usage and performance. Since 1992, TransUnion has been aggregating this information at the county, Metropolitan Statistical Area (MSA), state and national levels.

As a global leader in information and risk management, TransUnion creates advantages for millions of people around the world by gathering, analyzing and delivering information. For businesses, TransUnion helps improve efficiency, manage risk, reduce costs and increase revenue by delivering high quality data, and integrating advanced analytics and enhanced decision-making capabilities. Through these and other efforts, TransUnion is working to build stronger economies worldwide. Founded in 1968 and headquartered in Chicago, TransUnion reaches businesses and consumers in 23 countries around the world.