Despite Increased Borrowing and Demand Credit Risk Declines

After increasing for two quarters TransUnion's Credit Risk Index (CRI) ratcheted back down in the second quarter of 2012 to about the same place it was one year earlier.  The CRI is a measure of risk inherent in the U.S. credit-using population; the higher the index, the higher the level of risk.

The index decreased 1.57 percent from 123.98 in the first quarter to 122.03 in the second.  On a year-over-year basis the CRI was up 0.66 percent, a difference TransUnion called "nominal."   The CRI is 7.6 points lower than its 129.67 peak in Q4 2009 and is now below Q4 2008 when it started its acceleration toward historic levels.

"After upticks in the prior two quarters, it was good to see the credit risk level decline this quarter to roughly the same level it was last year," said Charlie Wise, director of research and consulting in TransUnion's financial services business unit. "Delinquency rates for major loan types have all declined in the first half of 2012, and that contributed to the drop in the risk index in the second quarter."

Demand for credit increased substantially from Q1 2011 to the most recent period.  The 21.4 percent increase in consumer inquiries brought TransUnion's Total Inquiry Index (TII) to its highest level since the third quarter of 2007 - predating the recent recession.  Trans-Union said this may be a signal that consumers are beginning to increase their spending on discretionary and large-ticket purchases, reflecting an improvement in consumer sentiment and confidence.

TransUnion issues a separate report on delinquencies but said today that the improvements in delinquency rates for major consumer loans types have offset moderate increases in consumer borrowing over the past year including increases in auto loan and credit card balances.  Wise said he was pleased to see that, despite increases in these two types of borrowing, consumers are maintaining consistent payment behavior on those loans as well as on mortgages.   

Credit risk declined on a quarter-over-quarter basis in all 50 states although the District of Columbia had an increase of 0.98 percent.  Fifteen states had an annual decrease in risk including three of the five most populous states, Illinois (-3.28 percent), California (-1.39 percent), and Texas (-0.40 percent.)  Risk increased in New York (2.57 percent) and Florida (0.93 percent).