Financial Literacy

Canadians haven’t slowed down their borrowing as debt levels rise once again

By: Jessica Mach on May 23, 2019

Canadians have been taking on more debt in recent months, according to a new report by TransUnion — and they’re dealing with it just fine.

Consumer balances across the country totalled $1.85 trillion in the first quarter of 2019, a 4.2% increase from the first quarter of 2018, the credit reporting agency said Wednesday. This growth was driven mostly by the number of people with non-revolving lines of credit (e.g. auto or installment loans, that are distributed to the customer in a single lump sum and can’t be renewed once they’re paid off), which grew by 3.1% year-over-year.

Even with these increases, though, Canadians are not struggling. The rate of delinquency — which measures how many loan payments are late — stayed “broadly flat,” according to Matt Fabian, director of financial services research and consulting for TransUnion Canada.

Fabian implied that this was an encouraging sign, given how many Canadians were forced to take out bigger lines of credit as the economy waned. “The Canadian consumer credit market expanded against a backdrop of moderating economic growth, signs of increasing inflationary pressures and higher interest rates,” he said. “It’s a big positive that this credit growth hasn’t come at the expense of serious delinquencies.”

TransUnion’s report arrives as other reports show that Canadians are struggling to pay off high debt loads, filing for insolvencies at a higher rate and failing to make their mortgage payments on time.

But while TransUnion says that Canadians are faring better on the whole, certain demographics are having a harder time.

Balances grew the fastest among “below-prime risk tiers,” which TransUnion defined as people with credit scores lower than 720.

Canadians with below-prime credit scores also took out more revolving lines of credit, like credit cards. Balances among subprime consumers grew by 6% year-over-year, while balances among near-prime customers increased by 5.9%. The average rate of growth for Canadians overall was 5%.

“If the economy continues to cool and consumers’ disposable income is stretched, we would expect to see higher revolving balances in below-prime segments, as these are the consumers who are more likely to use products like credit cards to start to cover day-to-day living expenses,” Fabian said.

“It is a trend that warrants further scrutiny in upcoming quarters and will provide good insight into both lenders’ continued appetite for risk as well how household budgets are coping with changing economic conditions.”