Will Consumer Credit Trends from 2020 Hold Steady in 2021?

Published April 2021
Credit Score Meter The consumer credit market responded to the various pandemic-triggered crises of 2020 in ways that you may find surprising. Instead of imploding, it saw dropping credit utilization ratios and balances, improved payment histories, and skyrocketing credit scores. All these developments happened against the backdrop of slowing lending and dropping originations during the second quarter of the year.

Key Points: 

  • Credit scores will remain high as credit card balances remain low, despite more originations.
  • Consumer loans will rebound, as will auto loans.
  • Mortgage origination will likely slow. 

According to Experian, despite the thousands of business closures across the country and the uncertain economic outlook, credit scores took off in the right direction, recording unprecedented growth and record averages. 

Experts have attributed the trend of dropping indebtedness and delinquencies to a combination of government stimulus action and more willingness on the part of private-sector lenders to work out advantageous payment accommodations for their clients. 

Despite the economic setbacks, during 2020: 

  • Delinquencies and credit utilization ratios dropped.
  • Credit scores soared. 2020 has been responsible for one-third of this decade’s credit score growth.
  • All states registered considerable improvements in key credit indicators.
  • The most significant decrease occurred in credit card debt.
  • Personal loan originations dropped.
  • HELOCs registered balance drops.
  • The number of consumers with subprime credit dropped.

Most of the changes occurred within the span of a few months, and some of these trends may not be strong enough to carry over through 2021. 

As the pandemic rages on, the US Government has taken further action to stimulate the economy through a new COVID-19 relief package, including stimulus checks, support for local and state governments, and help for small businesses. President Biden’s $1.9 trillion economic rescue package also provides increased funding for vaccine rollouts. 

Economic Variables Defining the Consumer Credit Market Differ Now 

According to analysis from McKinsey.com, the accelerated pace of vaccine rollouts will likely result in the gradual subsiding of the pandemic, starting with the second quarter of 2021. 

The normalization of the economic variables will alter the consumer credit picture as well. What could this mean in terms of trends? Will we see a continuation of the 2020 trends, or will we witness radically different economic patterns unfold? 

Predictions are nothing more than educated guesses. But experts like those working for TransUnion work with scores of variables, experience, and expertise. Based on TransUnion’s predictions, here are some of the consumer credit trends likely to develop in 2021. 

Credit Card Issuers Will Ramp Up Business as Originations Skyrocket 

Credit card originations will take off beginning with the second quarter of the year, as the pandemic begins to recede and the economy starts to recover. Better GDP numbers and improving unemployment will provide the fuel for this growth. 

With originations returning to pre-pandemic levels, continued low delinquencies, and dropping credit card debt will create a perfect environment for strong performance. It may be that fewer consumers will need credit card help, and credit scores will remain high. 

Having tightened up their finances through 2020, many consumers will be reluctant to resume old spending patterns. 

Consumer Loans to Rebound Through 2021

As unemployment improves, consumer demand for unsecured loans will increase. Past the second quarter, originations of such loans will likely reach their pre-pandemic levels. 

More unsecured loans will usher in higher delinquency rates, thus putting a dent into that 2020 trend. Expiring forbearance periods will likely fuel this emerging 2021 trend as well. Experts do not expect delinquency levels to exceed pre-pandemic levels, however. 

The Auto Finance Market May Begin Recovering 

This consumer credit industry segment took a pounding in 2020. As consumers put off new auto acquisitions, the auto finance market saw a double-digit decline. 

With the improving economy, new car sales will pick up in 2021, just enough to flatten out the decline.

The bulk of the new auto loan originations will shift toward prime and low-risk consumers, improving the performance of this industry segment. 

Mortgage Industry Origination Activity to Slow

In 2020, the mortgage industry went through a major origination boom. As the economy rebounds in 2021, this trend will probably flatten out. Forbearance programs muddy the mortgage delinquency picture for 2021 due to the fact that while in forbearance, mortgages are not delinquent. 

As accommodation programs expire, there may be a slight uptick in delinquency in the spring of 2021. Experts do not expect a sharp, lasting increase in this respect, however. 

The Time for Credit Card Relief is Now

Though the general outlook for credit card debt appears to be rosier than it has been in times past, for many Americans, 2020’s events did little to improve their credit card situation.

If you are struggling with credit card debt, now is the time to make your move to find relief. Contact a ClearOne Advantage Certified Debt Specialist at 866-481-1597 to discuss your credit card relief options and get a free savings estimate today.

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Topics: Financial Education