As the Bank of Canada again moved aggressively to try to push down inflation by raising its benchmark interest rate Wednesday, Canadians are loading up their plastic.
Credit card balances are reaching highs — as borrowing costs and the daily cost of everything remains at a 40-year high.
“Financial stress is becoming a very real thing for many more Canadians. Its impact on consumer credit is not just visible in day-to-day credit card spending, but also in other non-mortgage debt like auto loans and lines of credit, where balances are on the rise,” said Rebecca Oakes, vice-president of Advanced Analytics at Equifax Canada.
Credit card balances rose to the highest level since the end of 2019.
The biggest shift in consumer credit balance has been on those with lower credit scores, who may have a higher risk of missing payments, according to Equifax.
“Credit card spending is reaching historically high levels,” added Oakes. “High consumer demand for credit cards means a competitive marketplace for lenders. As a result, the credit limits being offered on new cards are much higher than we’ve seen in previous periods.”
According to Equifax, the average credit limit on new cards exceeds $5,800 — the highest amount in the last seven years.
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The average amount spent monthly on a credit card was almost $2,370 in the second quarter – up 22% compared to the same quarter in 2021.
From Jan. 1 to May 31, Canadians racked up about $10 billion more on credit cards held with charter banks – bringing the total owed to at least $83 billion, according to Bank of Canada figures.
The uptick is in stark contrast to the overall trend in 2020 when Canadians were rapidly paying down their credit cards as they were stuck at home and faced pandemic restrictions.
With most restrictions gone — and the economy and job markets showing strength — demand continues to outstrip supply. Inflation was running at 7.6% in July.
Statistics Canada will release its next look at inflation in Canada on Sept. 20. On Wednesday, the Bank of Canada increased its benchmark interest rate by .75% to 3.25%.
“The rapid rise in inflation and interest rates is clouding the economic outlook. Early indications in our data suggest financial stress is starting to emerge,” said Oakes. “Canadians should continue to be mindful of their spending and debt obligations.”
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