CashNews.co
A key measure of Canadians’ credit risk worsened this year, defying a long-term trend and underlining the ongoing strain of recent economic conditions, new data from credit analytics firm FICO says.
The measure, called the FICO score, “had been slowly increasing over time,” said Tommy Lee, FICO’s senior director of scores and predictive analytics. “It increased notably during the pandemic, and was pretty flat recently, but this is the first decline.”
FICO scores range between 300 and 900, with higher scores indicating lower credit risk. The FICO score is used by lenders to make decisions on anything from loan eligibility to adjusting a credit limit, and looks at factors including payment history, amounts owed, length of credit history and new credit.
The average score in April 2024 was 760, down two points from a year earlier, and comes alongside data that show “an upward trend in consumer missed payments and debt levels,” according to FICO’s report. The FICO data’s depiction of Canadians’ financial difficulties aligns with recent Statistics Canada data showing a growing debt burden, but also with qualitative studies that reveal persistent consumer pessimism in spite of lower inflation and falling interest rates.
FICO’s data show the number of Canadians 90 or more days past due on payments in the past six months has risen 9.6 per cent since 2023. Payments 30 or more days past due have gone up 12.5 per cent since last year for auto loans, and 14.2 per cent for real estate loans. Bank card delinquencies are also up, but by a more modest amount.
Credit card balances have gone up 4.9 per cent since 2023, the report notes. Around one third of Canadians opened a new credit account in the last year, “nearly identical to pre-pandemic levels,” the report says. The document suggests Canadians “may be seeking and obtaining new credit to help manage rising debt levels and higher pricing on those debts.”
Although the most recent FICO average of 760 is down two points, it remains seven points higher than the 2020 average of 753, an indication of the ways Canadians’ financial practices changed during the pandemic. The FICO score factors in credit behaviour over a seven-year period, Lee said, so Canadians’ generally stronger credit performance during the pandemic lingers in present-day data.
“It’s still benefiting consumers’ scores because they didn’t miss payments in 2020 and 2021 as much as they normally would,” Lee said.
The document notes opposing forces acting upon Canadians’ financial situations. Consumers are faced with a “stubbornly high cost of living and its impact on affordability” as well as a glut of mortgages that have renewed or will renew “at significantly higher rates,” the report says. Simultaneously, however, Canadians are experiencing subdued inflation, “a healthy labour market and sustained wage growth.”