TransUnion Thursday issued two key quarterly indices on credit risk and the demand for and potential utilization of credit by U.S. consumers. Both indices are a barometer of the credit health of the nation as well as credit activity and risk on regional and state levels.
From a risk perspective, TransUnion’s proprietary Credit Risk Index (CRI) declined for the fifth consecutive quarter, indicating consumers are increasingly likely to repay their debt obligations and are managing new credit more responsibly. For the first quarter of 2011, the CRI came in at 123.56 – approximately 5 percent lower than the index high of 129.67 (Q4 2009) and 1.6 percent lower when compared to last quarter (125.61). The quarter-over-quarter decline was the largest since the third quarter of 2008.
Consumer demand for credit, as measured by TransUnion’s Total Inquiry Index (TII), also decreased in the first quarter to 64.41. The higher the TII number, the greater demand is for credit by consumers. Using 2000 as the base year of the index, demand for credit remains historically low. However, the quarterly decline in the index (2.2 percent) was the slowest decline since the first quarter of 2008, possibly indicating a deceleration or leveling off of its trajectory.
Q1 2010 CRI/TII Regional Statistics
For the second 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.
- Every state experienced at least a 0.58 percent decline in their CRI, with the exception of North and South Dakota, which both have a CRI well below 100.
- States with the highest Credit Risk Index remained the same from the previous quarter, with Nevada (159.26), Mississippi (158.74) and Texas (155.69).
- States with the lowest Credit Risk Index continue to be concentrated in the Upper Midwest, with North Dakota at 80.30 and Minnesota at 87.04.
- States showing the greatest annual increase in credit demand as measured by the TII were Alaska (+16.8 percent), Vermont (+7.3 percent) and Pennsylvania (+3.5 percent).
- States experiencing the greatest annual decrease in credit demand as measured by the TII were Tennessee (-12.3 percent), District of Columbia (-12.0 percent) and Florida (-10.3 percent).
“The broad and steady decline in the Credit Risk Index, coupled with a moderate decrease in the demand for credit over the previous year suggests that consumers continue to live within their means, tending to acquire new credit only for larger, specific purchases,” said Chet Wiermanski, global chief scientist at TransUnion. “The percentage of consumers delinquent on any credit account has returned to the level immediately preceding the Great Recession, which is the primary reason for the decline in the Credit Risk Index. During this period, consumers have fundamentally changed the composition of their personal credit portfolio.
“In less than four years, the percentage of consumers with at least one general purpose bank issued credit card has dropped from its peak of nearly 75 percent to just below 66 percent, a level not seen since early 1998, with all indicators pointing to lower levels in the quarters to come. Conversely, the use of installment loans from banks, credit unions and finance companies, which historically exhibit lower level of delinquency, has remained relatively stable for nearly 20 years. The shift toward more responsible use of credit, coupled with an anticipated improvement within the economic front, e.g. employment, personal savings rates and consumer sentiment, should drive the Credit Risk Index lower for the next several quarters,” added Wiermanski.
The Credit Risk Index is defined as the weighted average probability of 90-day delinquency or worse among consumers in a given region relative to the nation as a whole. The Credit Risk Index uses the fourth quarter of 1998 as a baseline for comparison. Therefore, it measures changes in consumer credit score distributions relative to the national distribution and delinquency rates as a whole at the end of 1998.
TransUnion considered 1998 as a representative year of credit performance within the usual dynamic of the historical credit cycle. A value of more than 100 represents a higher level of relative risk. For comparison purposes, the Credit Risk Index in recent years has generally ranged between 110 and 120, experiencing a one- or two-point shift between quarters.
The Total Inquiry Index measures credit inquiry levels generated by consumers seeking credit, benchmarked to a quarterly level for the year 2000. A higher number in the index equates to more credit activity being generated by consumers for the quarter. TransUnion’s TII also allows lenders to identify pockets within the U.S. where consumer credit and general economic activity have begun to advance at a faster pace than other areas.
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 credit and information 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 comprehensive data and advanced analytics and decisioning. Founded in 1968 and headquartered in Chicago, TransUnion employs associates in more than 25 countries on five continents. www.transunion.com/business