We’re Carrying Fewer Credit Cards in Our Wallets, But Higher Balances

We have the latest credit card statistics, and it’s a good news, bad news story on the consumer debt front. The good news? Canadians are carrying fewer credit cards in their wallet. The bad news? The balances on the credit cards they already have is higher.

According to the latest statistics from TransUnion, the average credit card balance per Canadian is $4,094 in the last quarter of 2016, up 2.3 percent from a year ago. Total outstanding balance is also on the rise. That’s up 3.3 percent in the last year. Canadians owed a total of $94.2 billion in credit card debt in the fourth quarter of 2016, up from $91.2 billion in the fourth quarter a year earlier.

The credit reporting agency said that the number of open and active credit cards by Canadians fell by over 800,000 last year. There were 43.4 million active credit cards in use at the end of 2016, down from 44.2 million a year ago.

Why the sudden drop in the number of credit cards? TransUnion blames it on weaker demand for new cards. The number of Canadians who signed up for new credit cards was down 10 percent in the first three quarters of 2016 compared to 2015.

Another factor behind the drop? Consumer loyalty and an increased demand in lines of credit.

“The increase in card usage was universal across all consumer credit risk tiers, and as a result, some lenders appear to be increasing credit lines to their customers to capitalize on this loyalty effect,” said Chris Dias, senior vice-president of product innovation and analytics at TransUnion Canada. “This is positive news for consumers, as they may benefit from increased competition for their business and greater access to credit.”

Delinquency Rates on the Rise

When credit card balances rise, an increase in delinquency rates is expected. Then it should come as no surprise that serious delinquency rates rose “modestly” in the last year. The ratio of balances at least 90 days past due stood at 4.21 per cent for all of Canada in the final quarter of 2016, up from 4.08 percent a year earlier.

Hardest hit are the oil-rich provinces. Alberta and Saskatchewan both saw their delinquency rates spike by over 22 percent. It’s a different story in Ontario and B.C., where delinquency rates fell by 3.3 percent and 2.1 percent, respectively.

Using Your Credit Card Responsibly

How do you avoid carrying a large balance on your credit card and being delinquent? By using your credit card responsibly. That means following the golden rule of spending: only charge what you can afford to pay off in full once your credit card statement comes due.

While some people carry a balance on their credit card due to overspending, many people do so because of a financial emergency. For example, their car breaks down, the roof starts to leak or their child needs braces.

To avoid carrying high-interest debt, build up an emergency fund. Financial experts recommend socking away three to six months’ living expenses. If you can’t afford that much right away, don’t worry. Start by saving $50 a month or whatever you can afford until you build up a sizable rainy day fund.

The Bottom Line

Most people don’t plan to carry a large balance on their credit card, but then life happens, they lose their job and don’t feel like they have a choice. To avoid an unpleasant situation like this, plan ahead so you don’t have high-interest debt holding you down. The last thing you want to do is default on your debt and ruin the good credit score you’ve worked so hard to build up over the years.