Canada’s consumer debt reached a historic high of $2.5 trillion in the fourth quarter of 2024, marking a significant 4.5% increase year-over-year (YoY), according to TransUnion’s latest Q4 2024 Credit Industry Insights Report (CIIR). This growth is largely attributed to rising balances in both mortgage and non-mortgage debt, with the latter seeing a notable 5.8% YoY increase.
Revolving products, particularly credit cards and lines of credit, are central to the growth in non-mortgage debt. Credit card balances surged by 9.2%, maintaining a strong upward trajectory despite a slight slowing in growth. Similarly, line of credit balances grew by 4.2%. Although the pace of debt accumulation has slowed, the overall increase in balances remains substantial, says TransUnion.
Increased Credit Participation Reflects Changing Consumer Behavior
Credit participation also saw an increase, with 32.3 million Canadians now holding at least one open credit product, up by 2.5% YoY. This rise is partly attributed to a decline in interest rates and inflationary pressures that have made credit more accessible. Millennials and Gen Z consumers were the primary drivers behind this growth, collectively holding $1.1 trillion in outstanding balances, a 10% increase from the previous year. Gen Z, in particular, experienced a dramatic 29% YoY increase in credit participation as they expanded their debt portfolios beyond just credit cards, says the report.
Canada’s Consumer Credit Index Declines Amid Economic Uncertainty
Despite growth in overall debt, Canada’s Consumer Credit Index dropped to its lowest level since 2021, falling to 99.8 in Q4 2024. This decline indicates a weakening in the health of the Canadian retail credit market, driven by lower demand, slowing balances, and increasing delinquency rates. The index’s drop reflects deteriorating consumer behaviours and the broader economic uncertainty.
Credit Card Market Slows But Still Shows Growth
Credit card balances continued to grow in Q4 2024, marking the 31st consecutive month of YoY growth. However, the pace of this growth has slowed, indicating that the credit card market may be stabilizing. Bankcard originations, which refer to new credit card accounts, decreased by 3.7% YoY, with subprime originations seeing the most significant drop of 6.9%.
Despite this slowdown in new originations, credit card balance growth remained robust, with total market balances reaching $124 billion, up 9% YoY. This rise was fueled by an increase in revolving balances, indicating that consumers are increasingly carrying their credit card balances from month to month.
Delinquency Rates on the Rise Across All Generations
One of the more concerning trends highlighted in the report is the increase in consumer loan delinquency rates, particularly for credit cards. Serious consumer-level delinquency rates for bankcards rose to 0.93% in Q2 2024, up 9 basis points YoY. This uptick in delinquencies was most pronounced among younger consumers, with Gen Z experiencing a significant 26 basis point rise in their delinquency rate, now reaching 2.74%.
Matthew Fabian, Director of Financial Services Research and Consulting at TransUnion Canada, noted, “In an environment where new account growth is slowing, credit card issuers need to focus on optimizing account management strategies. Strengthening customer loyalty, fostering prudent balance growth, and engaging younger consumers to enhance lifetime value are crucial.”
Looking Ahead: The Future of the Credit Market
TransUnion’s data suggests that while the credit market is showing signs of stabilization, ongoing economic uncertainty and the high cost of living are weighing heavily on consumer spending decisions. The report anticipates that credit card originations will likely continue to slow into 2025, with a growing emphasis on managing existing accounts and optimizing consumer relationships.
“Gen Z consumers present a significant growth opportunity for lenders, especially through tailored credit card offerings,” Fabian emphasized. “They are educated and active credit users with a growing propensity to utilize credit throughout their lifecycle. Early management is crucial, as credit cards can be a valuable financial tool for Gen Z when managed responsibly.”
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