Inflation causing more Americans to increase their credit balance, TransUnion study says

As credit balances rise, consumers are still making on-time monthly payments

Inflation is causing some Americans to take on more credit card debt, but they are not missing their monthly payments, according to a TransUnion study.  (iStock)

Some Americans who are impacted by rising inflation have increased their credit balances in order to cope, according to a new study from TransUnion.

Non-prime borrowers have seen the greatest rise in both credit balances and delinquency rates since early 2021, the same time period that inflation began to increase, according to TransUnion's study called "Identifying Resilient Consumers During Inflationary Times."

"Inflation is expected to remain high through at least the end of 2022," Charlie Wise, TransUnion senior vice president and head of global research and consulting, said. "Its impact on consumer wallets is clear – balances are rising and we are seeing an uptick in delinquency rates."

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Credit balances grow as consumers face inflation

Americans had higher balances on non-mortgage products in the first quarter of 2022 due to several factors, according to the TransUnion study. Among them was that lending has recovered to a more "normal" level following a slowdown at the beginning of the pandemic. Higher prices of goods and services — like daily household purchases, as well as larger categories such as automobiles and home renovations — have also pushed loan amounts higher. 

After months of increases, inflation eased slightly in April, with the Consumer Price Index (CPI) reaching 8.3% annually, according to data from the Bureau of Labor Statistics (BLS). It remained near its previous 40-year high of 8.5% that was set the month prior. This came as the cost of energy, food and even child care all increased. 

"Making on-time payments and keeping credit utilization rates relatively low are key factors in credit score calculations," Margaret Poe, TransUnion's head of consumer credit education, said. "While challenges abound for consumers in the current inflationary environment, it is heartening to see borrowers, especially those in the riskiest credit categories, make an effort to pay down more of their monthly payment obligations. Building a foundation of sound financial and credit habits and practicing them consistently are the keys to long-term credit health."

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Consumers continue to make on-time credit payments

Although credit usage has risen, consumers are continuing to make their payments on time, according to TransUnion. The average monthly minimum credit card payment due increased to $194 in the first quarter of 2022, up from $182 the same time last year. For non-revolving lines of credit, the monthly amount rose from $513 to $557 over the same period. 

"Our study determined that consumers in varying credit risk tiers and with different product types will face unique impacts," Wise said. "One of the key conclusions from the study is that while a prolonged, elevated inflation environment will negatively impact many consumers, serious delinquency rates will generally not rise above levels seen prior to the pandemic, even under worst-case inflation scenarios. Furthermore, consumer credit markets will likely see more positive credit behavior once inflation abates."

The study said that more consumers were making excess payments in the first quarter of 2022 than they were before the pandemic began. That also includes about 30% of subprime borrowers.

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