Canadian Consumer Credit Market Reaches a New High, Driven by Credit Demand from New-to-Credit Canada Consumers

Key findings from TransUnion report:

  • Consumer credit-active population growth is primarily driven by New-to-Credit consumers, with those being New-to-Canada driving the trend.
  • Canada’s credit market reached a new high, in terms of outstanding balances.
  • Rising delinquencies, observed for three consecutive quarters, are prompting lenders to tighten underwriting standards.

TORONTO, Feb. 27, 2024 (GLOBE NEWSWIRE) -- Against a macroeconomic backdrop of persistently elevated inflation and high interest rates, TransUnion data indicates more Canadians are engaging in the credit marketplace, leading to a steady growth in credit participation. The number of consumers holding at least one active credit product grew by 3.6% year-over-year (YoY) in the fourth quarter of 2023 to an unprecedented 31.5 million, with approximately 96% of Canada’s credit-eligible population – consumers aged 18 and older – having access to at least one traditional credit product. At the same time, New-to-Credit Canadians represented $1 billion growth in balances over the past year.

The volume of credit originations by ‘New-to-Canada’1 consumers grew 46% YoY from 2022 to 2023 and were responsible for 12% of total originations (up from 5% in 2021). This newly credit active population, including nearly 470,000 immigrants2 over the last year, accounted for $3.5 billion in new outstanding balances.

“As the New-to-Canada population continues to grow, banks should continue to focus on engaging these consumers and addressing their specific credit needs not only at acquisition, but throughout their lifecycle,” said Matthew Fabian, director of financial services research and consulting at TransUnion Canada. “This segment represents a significant opportunity to build longer and deeper relationships as these new consumer’s credit wallets are likely to expand as they make Canada their new home.”

Along with an increase in total credit participation, the number of consumers carrying a balance also increased by 3.7% YoY and reached 29.1 million, constituting approximately 92% of credit active consumers in Canada. As a result, the total outstanding balances across all credit products reached a new record of $2.4 trillion, reflecting a 2.9% YoY increase as of Q4 2023.

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 Q4 Consumer Pulse Survey.

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 Q4 2023 in Canada was 106.5 in December 2023, up 1.5 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 at a healthy pace.

Lenders Scaled Back due to Concerns Around Rising Delinquencies
Canadians’ average credit balance has trended up, given the underlying macroeconomic environment pressures and consumers’ increased reliance on credit, resulting in increasing minimum payment obligations for consumers.

Table 1: Average Minimum Monthly Payment Due*
 Q4 2022Q4 2023% YoY
Credit Card$102$11411%
Auto Loan$625$6626%
Installment Loan$70$7913%
Line of Credit$411$46613%

*Average for all consumers holding one or more account of that product type.
Source: TransUnion Canada consumer credit database

“Rising minimum payment obligations have pressured consumers, although historic strength in the job market and positive real wage growth have helped consumers address this challenge,” said Fabian. “As pressures from inflation and high interest rates continue to persist, more Canadian consumers may find that their disposable income does not keep up with rising payments, and will need to make trade-off decisions between spending and paying down bills and credit debt.”

While Canada’s credit market has demonstrated overall resilience, some consumer segments are facing the combination of a high cost of living, sustained high interest rates, and complex housing dynamics, making them more vulnerable to delinquency.

Overall consumer-level serious delinquency (the proportion of consumers with a delinquency 90 or more days past due) increased 15 bps YoY to 1.66% during the fourth quarter of 2023, which marks the third consecutive quarter of rising default rates. Higher delinquencies were observed across all major consumer credit products.

Table 2: Consumer-level serious delinquency (all products)
ProductQ4 2022 Consumer-level serious delinquency*Q4 2023 Consumer-level serious delinquency*Change (bps YoY)
Credit Cards0.75%0.84%+8
Auto Finance0.83%0.92%+9
Personal Loans2.27%2.48%+21
Lines of Credit0.26%0.37%+11
Home Finance0.19%0.22%+3
Total Consumer (90DPD)1.51%1.66%+15

* Serious delinquency measured as 60+ days past due for all products except credit card which is 90+ days past due
Source: TransUnion Canada consumer credit database

“These delinquency levels are still healthy when compared to pre-pandemic delinquency rates. As credit participation increases to include more New-to-Credit and New-to-Canada borrowers, we expect to see a subsequent uptick in delinquency rates, which is reflective of an active credit market in Canada,” said Fabian.

Another trend observed during the fourth quarter of 2023 was an 8% YoY rise in first-time defaulters – those who defaulted on at least one credit account for the first time in their credit history. First time defaulters comprised over 20% of all consumers in early-stage delinquency.

“These trends pose a unique challenge for lenders as these are consumers with no recent missed payments,” explained Fabian. “As these defaults occur for the first time, lenders must focus on devising proactive risk strategies to predict first-time-default customers before they first miss payments, and help to educate consumers and enable responsible credit practices.”

Likely in response to these recent increases in delinquency, lenders have tightened underwriting standards in recent months, as they manage existing portfolio health carefully with slower loan growth. Despite overall inquiries having increased by 22% YoY, most credit products, except for credit cards and auto loans, experienced a YoY decline in origination volumes (a measure of both consumer demand and lender willingness to advance credit).

Credit ProductQ3 2023 Year-over-year Origination Volume Change
Credit Cards+14.1%
Auto Loans+3.1%
Lines of credit-15.1%
Unsecured personal loan-2.5%

Source: TransUnion Canada consumer credit database

For more information about the Q4 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 ‘New-to-Canada’ consumers are those relocating into the country and entering its credit market for the first time.
2 Immigrants in Canada 2023 | Statista