Consumer Credit Market Increasingly Splitting Along a K Shaped Path, TransUnion Research Finds

By Roy Urrico

TransUnion’s Q1 2026 Credit Industry Insights Report (CIIR) highlights a U.S. consumer credit market that remains stable overall but increasingly divided beneath the surface. As economic growth moderates and affordability pressures persist, credit outcomes are splitting along a “K‑shaped path, with strength consolidating among super prime consumers and strain rising among non‑prime households,” the report stated.

Chicago-based information and insights company TransUnion’s new research reveals the U.S. consumer credit market increasingly diverging with the riskiest and least risky credit tiers experiencing the most pronounced shifts in credit use.

Key findings from the report:

• At the top, the super-prime segment continues to expand, with the population growing by 15 million consumers between the fourth quarters of 2019 and 2025 as more individuals migrated into the lowest-risk credit tier. This upward shift reflects strengthening credit profiles and improving financial health among higher credit-quality borrowers.

• Middle-risk tiers such as prime plus, prime and near-prime have all experienced notable declines since 2019. In contrast, the share of subprime borrowers has remained relatively stable, while many of these consumers face mounting pressure on household balance sheets. Many non-prime consumers – those in the subprime and near prime risk tiers – are carrying higher debt loads, with rising debt-to-income ratios that point to potential financial strain.

• Affordability challenges shape outcomes across the credit spectrum, but they weigh most heavily on non-prime consumers. Since the fourth quarter of 2019, debt loads have risen across all risk tiers, driven by increased borrowing fueled in part by higher everyday expenses. These growing balances and the resulting debt service obligations constrain household cash flow and reduce financial flexibility.

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Charlie Wise, SVP, research and consulting at TransUnion, discussed with Finopotamus TransUnion’s report on the K-shaped consumer credit market.

“What we are seeing is the biggest migrations are consumers into that top tier, about 15 million additional consumers that are in that super prime tier at the top,” said Wise. “But we are also seeing growth at the bottom end, particularly in the subprime tier. And that growth in the subprime is more recent (and) has to speak to the post pandemic, elevated levels of inflation, interest rates, that seems to be hitting consumers at the bottom more.”

Other Selected Data Points

From the CIIR:

• Bankcard originations rose 13.0% year-over-year (YoY) to 21.9 million in fourth quarter 2025; Total balances grew 4.6% YoY in fourth quartered of2026 to $1.12 trillion; 90+ Days Past Due (DPD) borrower delinquencies rose 10 bps YoY to 2.53% in the first quarter of 2026.

• In last quarter of 2025, personal loan originations hit a record 7.6 million, up 21.7% YoY; Outstanding personal loan balances hit a record $277 billion in the first quarter of 2026; 60+ days past due (DPD) balance delinquency decreased 2 basis points to 2.04% versus the prior year.

• Fourth quarter 2025 mortgage originations posted double‑digit YoY growth; fourth quarter 2025 home equity originations increased 12.3%; consumer-level mortgage delinquencies (60+ DPD) edged up to 1.57% in the fourth quarter of 2025.

• Auto loan originations declined 0.92% in the fourth quarter of 2025; average monthly payments continued to rise alongside higher financing amounts; Consumer‑level 60+ DPD delinquency edged up to 1.57% in the first quarter of 2026.

Moving to the Ends

These findings, Wise said, confirm the K-shape economy does apply in the credit world as well, where the top end seem to be doing better and the bottom end seem to struggle more than they have in the past. “There are more consumers that are moving to the ends,” observed Wise. Not only are more consumers moving in that lower realm, he added, but their ability to manage their debt, live within their means and not have to borrow is getting worse.

“What we also see is that consumers that are in the bottom ends who have always struggled, (but) they're struggling more than compared to 2019,” observed Wise. He specified, “Their debt-to-income ratios are higher, their total levels of debt are higher, they're going delinquent at faster rates or at higher levels on new credit that they open.”

For lenders, it is understanding how consumers are likely to perform at different risk levels. “What do I mean by that? Since the pandemic era there has been a lot of migration of consumers. Going back into the not-so-distant history during the pandemic, there was a lot of money that flooded consumers, a lot of stimulus payments and enhanced unemployment benefits,” explained Wise. As a result, consumers had a lot of liquidity. “They all of a sudden had cash that they used to pay down their credit card debts, to clean up delinquencies. And we saw a big improvement in consumers overall credit scores. A lot of consumers in those lower risk tiers got better in a relatively quick amount of time.”

Dealing with Changing Lender Risk

More consumers are reverting to where they were prior to the “pandemic liquidly surge,” said Wise. “We're seeing now more consumers are struggling. “Many of those consumers saw that near term bump at their credit scores. Lenders may have expected them to perform a certain way in terms of their probability of default on new accounts. And delinquencies have been higher for that.” What that all means is that lenders need to continually reevaluate their risk strategies.

“Many lenders do; some lenders don't,” warned Wise. “One of the things that we’ve seen, is that there's a still a lot of lending to below prime consumers, the subprime and near prime risk tiers.”

That warning does not indicate lenders are irresponsible, claimed Wise. “A lot of that lending is happening in credit cards and it is happening in unsecured personal loans. They are being much more cautious with those consumers. Yes, they will extend a new loan or a new credit card to a subprime borrower, but they will give them smaller loan amounts, or they will give them smaller credit limits on that new credit card and essentially let them prove their way into larger credit limits.”

Wise said it is not a great strategy for lenders just to say, “‘Consumers are riskier, let us just cut off the credit spigot to them.’ What they need to do is be smarter about it. Limit your exposure for those consumers that are basically desperation borrowing.” And then for those that that look like they are doing well, increase that exposure, he recommended.

“Credit unions are really good at that relationship lending. Why? Because they have the ability to contact and nurture those consumers. A big fintech lender, they do not necessarily have that relationship,” Wise told Finopotamus. “A lot of subprime consumers, they are going through something. If you can help them through those tough times and come out on the other end, you have got a really loyal member for a lot of years after.”

Said Wise: “So hopefully with this study, we are going to help lenders understand that yes, there are consumers that are struggling, but not all of them. In fact, the vast majority of consumers in the below prime tier are going to perform well. You just need to really be diligent about understanding and using the tools at your disposal, the data tools at your disposal to do a better job of identifying who is going to perform well and who might be truly struggling.”