Most Canadian households are shying away from new credit, as higher interest rates lower incentive. Though there remains an exception, according to new data from TransUnion. The credit reporting giant found that new account growth for every type of credit fell in 2022, with credit cards being the exception. That trend may be problematic when combined with another insight from the agency—the demographics with the highest growth also happen to be the ones with the worst credit scores.
Canadians Are Pausing On New Mortgages, But Getting New Credit Cards
Canada’s climbing interest rates may be deterring borrowers from taking out new credit. Mortgages are the largest source of outstanding credit, but new originations fell by 32% in 2022. Fewer new accounts were seen nearly across the board, with originations dropping for personal loans (-16%), line of credit (-17%), and auto loans (-3%).
Only one major credit segment showed positive growth—credit cards. New credit card accounts grew 20% in 2022, which is impressive growth.
Canada’s Subprime Borrowers Are Back, and One of the Fastest Growing Segments of Borrowers
The fastest growth in new credit accounts is coming from a less-than-ideal market. Near prime, which is poor quality, but not the worst, was the largest growth segment in 2022. Followed by subprime borrowers, which represent the worst quality borrowers.
As the chart above shows, subprime credit took a big break in 2020, showing the sharpest contraction for new originations. This was due to a combination of fewer lenders willing to take a risk, and losing out to higher quality completion for loans.
Now that higher quality borrowers have peaked, lenders appear to be more comfortable taking on lower quality borrowers. It’s likely still a very small share of borrowers, but remarkably it’s growing at nearly twice the rate of originations for prime plus borrowers. That means the quantity of accounts can catch up really fast.