TransUnion Report Shows U.S. Credit Risk Increases After Seven Consecutive Declines
CHICAGO, IL--(Marketwire - Mar 13, 2012) - TransUnion's proprietary Credit Risk Index (CRI), a measure of the risk inherent in the U.S. credit-using population, increased for the first time since 4Q 2009. Quarter over quarter, the 4Q 2011 CRI for the U.S. increased 2.3% to 123.36. This increase reverses a trend of decline that began in 1Q 2010. Despite this recent uptick, year over year the CRI is down 1.7%. A higher index indicates a higher level of credit risk.
"Last quarter, TransUnion noted that the broad and steady decline in the CRI was beginning to level off," said Charlie Wise, director of research and consulting at TransUnion. "Increases in borrower delinquencies certainly played a role with this reported rise, with delinquency rates on credit cards and mortgages both slightly rising in the fourth quarter. Since past behavior is indicative of future performance, the uptick in delinquency leads to a higher risk forecast.
"Finally, the 4Q 2011 rise in the CRI may also be attributed in part to a notable increase in the percentage of non-prime consumers with an active bank card. As lenders make credit more widely available at the riskier end of the credit spectrum, it is inevitable that the risk of default will increase for the population on average."
Credit utilization is another component of the CRI and tends to be seasonal, with increases expected during the last three months of the year due to holiday shopping. While the seasonal effect is short term, an increase in credit utilization generally indicates higher risk and is consequently reflected in the uptick in the CRI. On a positive note, the year-over-year comparison, which takes seasonality out of the equation, shows a decrease in overall risk.
On a related note, demand for consumer credit showed an increase of 6.0 percent in Q4 2011 from the same period a year ago, as measured by TransUnion's Total Inquiry Index (TII). Although this increase in the index was the largest since Q2 2007, consumer demand for credit is still well below levels experienced prior to the past recession. Even so, the increase in consumer-initiated inquiries for credit may be a signal that consumers are beginning to increase their spending on discretionary items and may reflect stronger consumer sentiment and confidence toward the U.S. economy.
Q4 2011 CRI Statistics
- The TransUnion CRI is 631 basis points lower from its peak in Q4 2009. Credit risk within the U.S. is now equivalent to the level measured in Q2 2008, which at that time was just beginning to accelerate toward historic levels.
- Quarter over quarter, credit risk appears to have increased seasonally in 47 states and the District of Columbia. Only Alaska, North Carolina and Utah experienced a decline in risk from the previous quarter.
- South Carolina (156.13) had the highest CRI, followed by Nevada (155.95) and Mississippi (155.48).
- States with the lowest CRI continue to be concentrated in the Upper Midwest and New England regions. The states with the lowest CRI's are North Dakota (77.37) and Minnesota (87.22), with South Dakota and Vermont tied for third (91.66).
- Year-over-year comparisons showed that 44 states and the District of Columbia had a decrease in their CRI in Q4 2011, with only 6 states experiencing an increase.
- The states with the highest year-over-year decrease in CRI were California (to 118.82), North Carolina (to 120.61) and Utah (to 102.20).
- The states with the highest year-over-year increase in CRI include Massachusetts (to 98.03), Kentucky (to 130.84) and West Virginia (to 127.15).
TransUnion's Trend Data Database
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. For consumers, TransUnion provides the tools, resources and education to help manage their credit health and achieve their financial goals. 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 25 countries around the world. For more information, visit www.transunion.com.
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