Canadian Credit Market Shows Continued Positive Momentum
In Q3 2021, TransUnion’s Credit Industry Indicator increased eight points, driven mostly by an increase in the supply of new credit. Growth in lending was driven primarily by new-to-credit consumers, particularly Gen Z consumers entering the credit market for the first time. Fueled by improving consumer financial health, delinquencies declined or remained flat across major credit products.
TransUnion today released the findings of its Q3 2021 TransUnion Credit Industry Insights Report (CIIR), which showed increased consumer credit activity as the economy reopened. TransUnion Canada’s Credit Industry Indicator (CII) rose to 101.7 points, up eight points from Q2 2021 and up 38 points from the lowest point in the pandemic (August 2020 at 63.6). The CII, which TransUnion launched in July 2021, is a country-specific measure of consumer credit health trends in four categories: demand, supply, consumer behaviour and performance.
Source: TransUnion Canada consumer credit database.
(i) A lower CII number compared to the prior period represents a decline in credit health, while a higher number reflects an improvement. The CII number needs to be looked at in relation to the previous period(s) and not in isolation. In October 2021, the CII of 101.7 represented an improvement in credit health compared to same month prior year (October 2020) and compared to prior month (September 2021).
“Consumer credit activity is heating up as the economy reopens and consumer confidence improves,” said Matt Fabian, director of financial services research and consulting at TransUnion. “As the recovery continues, lenders are loosening the tighter risk policies that were put in place during the pandemic, accelerating the supply of credit in the market and emerging for growth to meet consumer demand.”
Originations increased for the second consecutive quarter
Applications for credit (i.e., inquiries) increased 2.2% year-on-year (YoY) in Q3 2021 returning to pre-pandemic demand levels. This growth was led by the lower-risk prime plus and super prime consumer segments, while inquiries for higher-risk prime and below segments decreased.
Originations – a measure of new accounts opened and a function of demand and supply – increased by 56% from Q2 2020 to Q2 2021, representing more than $208 billion in new credit issued and marking the second straight quarter of double-digit growth since the onset of the pandemic. Despite a strong recovery, overall origination volumes have not recovered to pre-pandemic levels and are down 17% when comparing Q2 2021 to Q2 2019. Mortgages and lines of credit drove the YoY growth, increasing 49% and 87% from Q2 2020 to Q2 2021, respectively, and up 45% and 6% from Q2 2019, respectively, exceeding pre-pandemic levels.
The amount of new credit issued across all credit products has shown a significant increase, with newly originated balances up 74% from the prior year as lenders actively expand access to credit. The combination of origination acceleration and higher originating amounts suggest that lenders are relaxing pandemic risk restrictions and aggressively growing their portfolio and balances.
Table 1: Total New Accounts Opened by Product Type
Q2 2020 vs Q2 2021
Q2 2019 vs Q2 2021
Line of Credit
Mortgage growth remained elevated compared to historical levels, despite some cooling in the housing market. New mortgage originations accounted for $145B of new mortgage debt in the quarter, up 82% from Q2 2020. The average new mortgage balance issued was $379,567, up 22% from the prior-year quarter. The rapid appreciation in prices might still keep the mortgage market growing modestly for the near term.
New-to-credit consumers driving credit access growth
As a result of growing origination volumes, the number of Canadians with credit continued to rise, up 1% from the prior year with 29.5 million Canadian consumers having access to credit in Q3 2021. This increase was driven by new consumers entering the credit market for the first time and opening their first trade on credit file – specifically, Gen Z (born in or after 1995), which reached 3.4 million credit-active consumers in Q3 2021, up more than 16% YoY.
A recent research study presented at TransUnion Canada’s Financial Services Summit explored the increasing importance of new-to-credit (NTC) consumers from a growth perspective. Credit cards are the most popular first entry product, with more than 80% of NTC consumers opening credit card accounts as their first product. However, TransUnion research showed that NTC consumers typically have lower credit limits compared to established consumers. This may constrain engagement with the product and lead to lower spend and balances as a result.
NTC consumers have little to no credit history, and lower credit scores at the onset of their credit journey, which on the surface may prompt many lenders to issue lower credit lines in comparison to those offered to more established consumers. However, research showed that within the first year of using credit, 66% of NTC consumers improved their credit score, making them an attractive consumer segment to emerge for growth. In addition to improving credit scores, NTC consumers also generally outperformed established consumers with similar credit scores from a delinquency perspective. Additionally, 64% of NTC consumers opened a new credit product within 24 months, with a second credit card or an installment loan as the most popular additional product choices.
“New-to-credit consumers represent a potential growth segment for lenders with opportunities for cross-selling, especially as they grow credit needs and improve their risk profile after entering the credit market. While these consumers typically start with lower access than established consumers, as they progress on their credit journey, we observed a steady balance build, indicating growing credit needs,” said Fabian. “They can be a profitable segment for lenders who continue to build and expand relationships.”
Delinquencies show stabilization
In Q3 2021, consumer delinquencies continued to drop, with a decline reflected across almost all products, both quarter-on-quarter (QoQ) and YoY. High levels of consumer liquidity helped drive down delinquencies, and government subsidies continued to support consumers, helping prevent them from either becoming delinquent or rolling forward to higher levels of delinquency. Credit cards were the only product segment that remained flat YoY; however, serious delinquency rates remained well below pre-pandemic levels. All other credit products saw continued improvement in delinquency rates.
Table 2: Change in Delinquency
Consumer serious delinquency (% consumers 90 days past due)
YoY bp change
Lines of Credit
Unsecured Personal Loans
Credit cards are often a leading indicator of delinquency trends, as consumers experiencing financial stress tend to go delinquent on cards before other products. TransUnion’s 2021 payment hierarchy study showed that for Canadian consumers, credit cards are the least prioritized credit product for payments. Credit cards that were originated to Prime consumers in the year 2020 – during the pandemic period – have shown similar performance to cards originated before the pandemic, indicating no deterioration in delinquency of cards issued during the pandemic.
Significant declines in delinquency would not generally be expected during times of economic turmoil and elevated unemployment, making it clear that government and lender programs had a positive impact on credit health of consumers. While delinquencies remained relatively low across products, there has been a small increase in delinquencies from consumers recently coming off deferrals on their credit products. However, this represents a small segment – less than 10% of credit-active consumers took a deferral – and Canadian consumers as a whole continued to show resilience as the economy reopens.
“As we emerge from the pandemic, we expect to see the YoY reduction in balances taper off as spend is likely to ramp up, especially with holidays around the corner. Market competition for acquisition and share of wallet for revolving products like credit cards is expected to be high, as balances remain well below pre-pandemic levels. These conditions, combined with a recovering economy, should poise lenders for an urgency to grow prudently. However, the socioeconomic impact of the pandemic and shifting demographics toward younger, more digitally-savvy consumers in Canada requires careful consideration,” added Fabian. “As lenders prioritize opportunities, the current environment also presents new and distinct challenges. This next phase of growth will require strategic focus on new consumer segments such as new-to-credit, and effective channels to drive growth in acquisition and share of the consumer wallet.”
About TransUnion (NYSE: TRU)
TransUnion is a global information and insights company that makes trust possible in the modern economy. We do this by providing an actionable picture of each person so they can be reliably represented in the marketplace. As a result, businesses and consumers can transact with confidence and achieve great things. We call this Information for Good.® TransUnion provides solutions that help create economic opportunity, great experiences and personal empowerment for hundreds of millions of people in more than 30 countries. Our customers in Canada comprise some of the nation’s largest banks and card issuers, and TransUnion is a major credit reporting, fraud, and analytics solutions provider across the finance, retail, telecommunications, utilities, government and insurance sectors.
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Contact Fiona Bang
 TransUnion CreditVision® score risk tier segment definitions: subprime = 300-639; near prime = 640-719; prime = 720-759; prime plus = 760-799; super prime = 800+
Originations are viewed one quarter in arrears to account for reporting lag
 New-to-credit consumers are defined as those who opened a new credit for the first time on record.