Canadian Credit Market Reaches Record High Participation

  • Total Canadian credit active consumers holding at least one credit product at an all time high of 31.2 million.
  • While average credit card balance per consumer rose due to higher cost of living, the number of consumers paying more than the monthly minimum dropped by 311 bps YoY.
  • While consumer-level delinquencies at 1.55% are up by 12 bps YoY, they remain below pre-pandemic levels, highlighting Canadians’ financial resilience.

TORONTO, Dec. 05, 2023 (GLOBE NEWSWIRE) -- With a backdrop of ongoing economic pressures, the number of Canadians accessing credit increased in Q3 2023, with 31.2 million people holding at least one credit product during the quarter – an all-time high. This was fuelled by a surge of Generation Z consumers (born 1995-2010) and new Canadian immigrants entering the credit market.

The number of new accounts opened (originations) during Q3 2023 grew by 8.7% year-over-year (YoY). Generation Z and Millennials (born 1980 to 1994) made up 56% of all new originations, with originations from Generation Z consumers alone up by 35% YoY. Originations among those new to Canada increased by 62% YoY during Q3 2023, representing 11% of all newly originated credit products1.

While demand from these diverse groups of consumers, including new-to-credit borrowers, led the growth of the Canadian credit market during Q3 2023, consumers across all risk tiers* showed increased demand for credit. The highest increase in demand was among near prime and prime consumers, at 23.5% and 26.9% YoY, respectively.

These findings are featured in information and insights company TransUnion’s (NYSE:TRU) quarterly Credit Industry Insights Report (CIIR) and are supported by the company’s Q3 Consumer Pulse Survey, in which 40% of Generation Z respondents said that they intend to apply for new credit or to refinance existing credit.

“New-to-credit consumers, whether they’re younger consumers becoming credit-eligible or new immigrants, present a high-potential opportunity for growth, as this segment has an appetite for credit products and they exhibit good credit behaviours. While many are seeking initial access to credit – most often a credit card or personal loan – this segment can create a base of loyal customers who could become increasingly profitable as their needs and financial capacities continue to grow,” said Matthew Fabian, director of financial services research and consulting at TransUnion in Canada.

“Based on the growth seen over recent quarters, we forecast an incremental opportunity for over $13 billion in credit to be issued to these new consumers by 2025, highlighting the need for lenders to adapt their strategies to offer appealing products, convenience, and benefits, along with appropriate credit lines and pricing,” he added.

As part of the CIIR, TransUnion maps consumer credit market health with its Credit Industry Indicator (CII). The CII is a country-specific measure of consumer credit health trends, focusing on four pillars: demand, supply, consumer behaviour and performance. The CII for Q3 2023 in Canada was 107.7 in September 2023, up 2.1 points compared to the same period in 2022. This growth was primarily led by the rising consumer credit participation as balances and the number of consumers in the credit market have continued to grow.

Canadian Credit Industry Indicator(i)

Source: TransUnion Canada consumer credit database.

Canadians feel confident about leveraging credit to cope with rising cost of debt and living

As the number of consumers accessing credit grows in line with shifts in the country’s population, the increased cost of living along with rising cost of credit due to higher interest rates has also pushed Canadian consumers’ average credit balance to grow YoY.

Table 1: Average balances increase YoY

ProductQ3 2022 Average Balance per ConsumerQ3 2023 Average Balance per ConsumerChange (% YoY)
Credit Cards$3,913$4,2659.0%
Auto Finance$26,082$27,6806.1%
Personal Loans$20,938$21,6123.2%
Lines of Credit$34,968$34,099-2.5%
Home Finance$343,612$356,8483.9%

Source: TransUnion Canada consumer credit database

Balance increases in secured loans (auto finance and home finance) were primarily driven by increased average new loan.

Average card spend increased by 2.6% YoY, while the number of cards where consumers paid more than the minimum monthly amount due fell by 311 basis points (bps). This led to a 16% YoY growth in revolving balances (the unpaid portion of a credit card balance that rolls over to the next month). Overall, the increase in average credit card balances was mostly seen among below prime cardholders.

“We have seen a shift in credit card spending and balance-built behaviours through 2023, with the increased cost of living and debt, along with stronger consumer spending, being significant factors leading to the recent rise in credit card balances,” Fabian said.

Despite macroeconomic pressures consumer performance remains resilient

Inflation and increased debt servicing costs can erode consumers’ purchasing power, and possibly lead to higher debt burdens, making it challenging for some consumers to make timely debt repayments. This in turn can contribute to a rise in consumer credit delinquency.

Overall serious consumer-level delinquency (the proportion of consumers with a delinquency greater than 90 days past due) increased 12 bps YoY to 1.56% across all products during Q3 2023, increasing for the third consecutive quarter. However, the level of delinquency itself remains below pre-pandemic delinquency rates. The increased delinquency rates are not surprising as the sheer volume of credit participants in the market has increased, with more young consumers who have less credit experience entering the market.

Table 2: 90 days past due delinquency rates

ProductQ3 2022 Consumer-level delinquency 90+ DPDQ3 2023 Consumer-level delinquency 90+ DPDChange (bps YoY)
Credit Cards0.72%0.77%+5
Auto Finance0.76%0.88%+12
Personal Loans1.12%1.27%+16
Lines of Credit0.24%0.33%+9
Home Finance0.18%0.20%+2
Total Consumer1.44%1.56%+12

Source: TransUnion Canada consumer credit database

It is worth paying closer attention to pockets of vulnerability amid the economic headwinds. More recent below prime vintages – those cohorts of below prime consumers who took out loans more recently – has seen a jump of over 100 basis points in delinquency at 12 months on book. One key reason is that a segment of below prime consumers, who already have limited access to credit, are more vulnerable to the adverse effects of cost-of-living increases. When this happens, these consumers face additional financial strain, as they often have fewer financial resources before facing this challenge. This means that they are even more likely to struggle to cover essential expenses such as housing and groceries – exacerbated because they may face higher interest rates on their existing debts.

“Despite slight increases in delinquency rates, the overall risk distribution across Canadians is consistent with what it was pre-pandemic, with below-prime balances still only making up approximately 18% of the country’s total debt,” Fabian said. “The overall trend of improving risk distribution suggests that, overall, Canadian consumers remain resilient despite the economic headwinds they’re facing – although lenders need to predict and identify vulnerable consumers who are increasingly affected by economic and fiscal pressure.”

For more information about the Q3 2023 Credit Industry Insights Report, please click here.

*According to TransUnion CreditVision® risk score: Subprime = 300-639; Near prime = 640-719; Prime = 720-759; Prime plus = 760-799; Super prime = 800+

About TransUnion (NYSE: TRU) 
TransUnion is a global information and insights company with over 13,000 associates operating in more than 30 countries, including Canada where we’re the credit bureau of choice for most of Canada’s largest banks. We make trust possible by ensuring each person is reliably represented in the marketplace. We do this by providing an actionable view of consumers, stewarded with care.

Through our acquisitions and technology investments we have developed innovative solutions that extend beyond our strong foundation in core credit into areas such as marketing, fraud, risk and advanced analytics. As a result, consumers and businesses can transact with confidence and achieve great things. We call this Information for Good® — and it leads to economic opportunity, great experiences and personal empowerment for millions of people around the world.

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Contact: Alex Wilcox
Telephone: +1 705-878-6815

1 Origination volumes are reported one quarter behind

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