The TransUnion 2021 consumer credit forecast predicts that as long as unemployment figures and gross domestic product (GDP) continue to move in positive directions, banks will soon start approving more credit applications, particularly in the second quarter. Lenders tightened their purse strings this year to brace for financial losses as consumers weathered the pandemic, which made it harder for borrowers without stellar credit to get approved for new loans or credit cards. By Q3, nearly 72% of lenders had raised their approval standards. Today that rate is just under 27%, and this TransUnion report indicates that downward trend may continue. The credit bureau’s forecast projects new credit card accounts will see the most growth by midyear, as card issuers carefully expand their portfolios. But the pandemic isn’t over, and lingering economic uncertainty may further reduce consumer spending and, in turn, credit card debt, a trend already observed in the second half of 2020. Consumer behavior will significantly drive new auto and personal loan accounts next year, according to the TransUnion report. For example, demand for personal loans should steadily increase as employment numbers tick up and consumers become more interested in big-ticket expenses such as vacations and home renovations. Overall, the speed at which the consumer credit market bounces back from pandemic repercussions will be influenced by mortgage holders and how they manage their debt after many exit financial assistance programs. While most mortgage accounts that had been in forbearance are back in repayment, there is still a larger percentage of mortgage accounts in forbearance than auto, credit card, and personal loan accounts. Financial relief programs have helped keep serious delinquency rates low so far, but mortgage holders may not be out of the woods yet, according to Matt Komos, vice president of research and consulting at TransUnion. “We believe those consumers with accounts still in mortgage forbearance also may be the ones who will find it most difficult to make their monthly payments once accommodation programs end,” he said in the bureau’s press release. “A lot of external factors could influence their payment behaviors, including additional stimulus, the widespread release of vaccines, and the pace of economic recovery, though timing could play a major role in the impact to consumer credit.”
