Q4 2022 Credit Industry Insights 

^{*Represents the average balance held by a consumer across each type of product (consumers can have multiple instances of same product)}

More and more borrowers are looking to a range of credit products to cope with their financial pressures and better position themselves for the evolving financial landscape. Credit participation increased across all provinces, led by Ontario which saw a 3.2% increase in the number of credit-active consumers. Total outstanding balances also reached a new record high for the second consecutive quarter, increasing 6.8% year-over-year (YoY) to $2.3 trillion. Increases in average credit card and mortgage balances per consumer – up 7.2% and 4.5% YoY, respectively – largely drove this balance growth. 

While most efforts in portfolio management focus on optimizing collections after delinquency, lenders can focus more on borrowers in pre-delinquency states at risk of becoming delinquent, to empower consumers and prepare less costly recovery strategies. Using a robust data framework to identify at-risk consumers at an early stage, and respond with appropriate account management strategies, can help prevent delinquencies and build loyalty among customers.

To deliver the tools necessary for effective risk management, TransUnion conducted a study¹ to better understand first-time defaulting consumers, and clearly distinguish distracted consumers from struggling consumers. The study found that younger, higher risk consumers with lower incomes and less credit experience have a higher probability of becoming struggling consumers. However, a portion of prime and above borrowers are also struggling, making it key for lenders to identify them.

The study also found that consumers building balances are more likely to default, making this behaviour a leading indicator of delinquent and struggling consumers. A high utilization rate is also a good indicator for predicting struggling consumers, who also tend to have less mature portfolios, with a higher share of accounts opened in the last two years. In addition, the study found that consumers who pay above the minimum payment due amount are less likely to become delinquent and struggling.