More consumers are slipping into the riskiest credit segment

Core Insights - The report from TransUnion indicates a growing divide in credit scores, reflecting a "K-shaped" economy where wealthier households are thriving while lower-income groups struggle [2][4] Credit Score Trends - The share of low-risk, super prime borrowers (credit scores of 781-850) has increased from 37.1% in Q3 2019 to 40.9% in Q3 2023 [2] - The subprime segment (credit scores of 300-600) has also risen, returning to pre-pandemic levels, indicating a reversal of progress made during pandemic relief efforts [2][3] Consumer Segmentation - The percentage of consumers in the near prime, prime, and prime plus categories is lower than pre-pandemic levels, suggesting a shift towards extremes in credit risk [3] - 14.4% of consumers are classified as subprime, which may lead to higher interest rates and increased likelihood of default [3] Economic Implications - The divergence in credit quality supports the notion of a splintered economy, with wealthier families maintaining spending levels despite weakening consumer confidence and rising prices [4] - Delinquencies have not significantly increased, even as credit card and auto loan originations for both subprime and super-prime consumers have risen [7] Auto Loan Performance - Auto loan originations increased by 5.2% in Q3 2023 compared to the previous year, primarily driven by super prime and subprime borrowers [8] - However, the share of accounts 60 days or more past due has risen, indicating pressure on credit performance, particularly within prime and below-prime risk tiers [8]