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Updated on Tuesday, September 16, 2014
Experian regularly makes credit data available. We have looked at two sources:
- The New York Fed released its Q2 2014 household credit report, based upon Experian data
- We attended a session hosted by Experian Decision Analytics
The data shows that banks are rapidly expanding lending. Strong growth is seen in Bankcards, Auto Loans and Home Equity Lines of Credit. Consumer credit balances are increasing at the fastest rate since 2008.
- Total consumer debt grew 4%year-over-year in the second quarter, the fastest since 2008
- Home Equity Line of Credit (HELOC) originations are up 27% Year-over-Year, and California led the nation in HELOC growth
- People are using their HELOCs. Other than Superprime (greather than 780 score, utilization is above 70%
- Bankcard acquisitions are up 26% year-over-year
- Active credit card accounts grew for the fifth consecutive quarter, the longest since 2007
- Credit scores are at a record high, almost touching 700
In the second quarter, total consumer debt grew 4% over last year, a second consecutive quarter of 4% plus gains, and the third consecutive quarter of growth, which followed a streak of 19 quarters of declines.
The last time consumer credit grew this fast was early 2008, at the tail end of the last credit boom.
And the growth is being led by nearly all types of credit, with well-publicized double-digit gains in auto and student loans.
Home Equity Line of Credit (HELOC) growth of 27%
A HELOC is a line of credit that uses real estate as collateral. This product was very popular before the crisis, as it enabled people to borrow at very low interest rates with low monthly payments. At its peak, you could even use a debit card attached to your HELOC. Yes, you could finance your Starbucks latte over 30 years.
HELOC originations are booming, as the following Experian data shows:
Credit Card Originations up 26% Year-over-Year
In Q2, $85 billion of new credit lines were issued. This is a dramatic increase, and a high number in absolute terms. The increase in lines should lead to an increase in balances over time.
California is growing the fastest. (Should we be surprised?)
Usage of Home Equity Lines of Credit
Other than superprime (scores greater than 780), people use their available HELOC. The chart below shows that utilization well above 70%:
Average Equifax reported credit scores are continuing a steady rise that went relatively uninterrupted during the recession, and may soon top 700 for the first time. Negative information disappears from credit scores (usually) after seven years. As we move further from the recession, we can expect to see credit score continue to improve.
As more time passes, credit scores will continue to improve.
Banks are starting to increase lending at a rather dramatic pace. We can expect this to continue.
For individual consumers, this means that options to borrow are out there. If you are stuck with high cost debt, now is a good time to see if you can refinance at a lower rate.
However, we should all remember the lessons of the past crisis, and avoid the temptation to use our homes as a credit card.