Mortgage holders benefit, but first-time credit users continue to struggle
Interest rate cuts by the Bank of Canada (BoC) have started to ease financial pressures for some Canadians, but not all groups are feeling the relief.
Newcomers to Canada and the credit scene are still grappling with rising financial challenges, as highlighted in Equifax Canada’s latest Market Pulse Consumer Credit Trends Report. These groups are struggling to keep up with payments amid high inflation and increasing unemployment rates, painting a complex picture of Canada’s evolving credit landscape.
For new immigrants and those credit-active for just one to three years, missed payments have surged. In the third quarter of 2024, one in 22 individuals in these groups failed to make a credit payment, up from one in 28 during the same period last year. Many of these individuals who entered the Canadian credit system during peak immigration periods in late 2021 and early 2022 are now showing signs of financial strain.
“Historically newcomers have demonstrated strong credit performance in the first few years of being in the country. However, rising unemployment levels combined with high inflation in the last few years has likely added significant financial pressure to this group,” said Rebecca Oakes, vice president of advanced analytics at Equifax Canada.
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While some groups face mounting difficulties, there are signs of improvement elsewhere. Over 1.3 million consumers missed credit payments in Q3 2024—a 10.6% increase from a year ago—but the pace of rising delinquencies has started to slow, particularly for mortgage holders. This improvement is partly attributed to the BoC’s recent rate cuts, which have provided relief for those with variable-rate products like home equity lines of credit (HELOCs).
Despite this progress, delinquency rates for non-mortgage products remain higher than pre-pandemic levels, and affordability challenges persist in provinces such as Ontario and British Columbia.
Total consumer debt reached $2.54 trillion in Q3 2024, up 4% from the previous year, with non-mortgage debt per credit-active consumer averaging $21,810. Auto loans have been a key driver of rising debt, with non-bank auto loan balances increasing 12% year over year.
“We are finally starting to see small affordability improvements for consumers to purchase and finance vehicles. Reductions in used car prices along with better rate deals for new cars are helping to drive an increased demand for auto loans,” Oakes said.
Credit card spending patterns reflect continued caution among Canadians, with inflation-adjusted spending remaining below 2022 and 2023 levels. However, overall credit card debt rose 9.4% year over year, fuelled by population growth and increased balances among those unable to pay off their cards in full. Some relief was seen among HELOC holders, with a rise in the proportion of consumers paying their balances in full.
As many Canadians continue to face financial challenges as the holiday season nears, staying mindful of spending and managing debt responsibly remains crucial.
“Consumers should consider their personal financial positions when making spending decisions to avoid financial strain,” Oakes cautioned.
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