As consumers begin to emerge from their pandemic cocoons, they better closely manage their spending to avoid falling into a credit crunch, Canadian fintech Borrowell said. The company said the potential surge in “revenge spending” could hurt consumer credit scores if they become overly reliant on credit.
Borrowell analyzed close to one million member credit reports in April and May 2021. The average consumer in nearly every Canadian city had credit utilization rates above the recommended 30 percent, with the average well above at 43.5 percent. The average revolving balance of credit cards and lines of credit was $10,361. Markham, Ont. had the lowest average credit utilization rate at 29.2 percent while Moncton NB’s was highest at 54 percent.
Credit utilization is calculated by dividing a consumer’s revolving balance by their total credit limit. The higher the rate the more it points to potential financial management issues.
One piece of good news is that average credit utilization dropped slightly in Q2 2021 compared to Q2 2020 as people have less opportunity to spend. That trend could reverse as the economy re-opens.
The average Canadian has 2.4 revolving credit accounts open and a revolving credit limit of $23,795.
“Naturally, many Canadians will be increasing spending on food, clothes, social activities, travel, and more as the country gradually opens up to a new normal,” said Andrew Graham, co-founder and CEO of Borrowell. “But they should be cautious about ‘revenge spending’ after the past 16 months. Average credit utilization in Canada is already above the recommended rate of 30 percent, and this could increase even further as more and more opportunities to spend become available.
“We encourage Canadians to manage their finances cautiously over the next few months. Racking up credit card debt over the summer months can strain credit utilization rates and credit scores, putting long-term financial goals at risk.”
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