A newly released credit report says that more and more Canadians are using credit cards to make day-to-day purchases as the cost of living increases.
“The higher cost of living, driven by inflation, has led many Canadians to rely more heavily on credit to cover everyday expenses,” the report authors said.
They wrote that the problem was made worse by “stagnant wage growth” making it difficult for Canadians to keep up with rising costs without using credit.
“While Canada’s credit market has been resilient overall, we continue to see segments of consumers become less resilient as these conditions wear on over time. Defaults have picked up in 2024 and will likely increase into next year among weaker borrowers.”
The authors note that there has not been a dramatic spike in delinquency rates but an “observable uptick in missed payments” on credit cards and unsecured loans.
“This trend suggests while many Canadians are managing to meet their mortgage obligations, possibly due to the prioritization of securing housing, they’re struggling with other forms of debt.”
The number of “serious” delinquencies increased by 1.76 percent, according to TransUnion, which also said that delinquency numbers have been increasing for three consecutive quarters, yet are still below pre-pandemic levels.
“As the volume of credit participation increases, we expect to see a subsequent uptick in delinquency rates reflective of an active credit market in Canada.”
More Canadians are applying for and being given credit products, such as credit cards and loans. It’s a trend that TransUnion says is driven by younger consumers.
“Younger Canadians, specifically Generation Z (born 1995 - 2004) consumers, are driving the surge in credit participation while exhibiting a 30 percent [year-over-year] growth in outstanding balances,” the report authors said. “Balance growth in this cohort was primarily driven by card and personal loan products, which increased by 18 percent and 11 percent respectively during Q1 2024.”
Millennials have the most debt, according to TransUnion, with $911 billion of the $2.38 trillion credit market or about 38 percent of all debt.
“Lenders need to carefully monitor credit performance in the coming year, particularly among younger consumers and those at lower income levels who may be more vulnerable to the current economic strains of elevated inflation and interest rates,” said Matthew Fabian, director of financial services research and consulting at TransUnion Canada, adding that some of these consumers will see some challenges ahead.
When broken down provincially, Alberta saw the highest level of delinquency, or debt that is over 90 days past due (2.21 percent) followed by New Brunswick (2.16 percent) and Manitoba (2.11 percent).
