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Report On Business Canadians using fewer credit cards but balances higher, report says

A new study says Canadians are using fewer credit cards but carrying heavier balances.

Ryan Remiorz/THE CANADIAN PRESS

Canadians are carrying fewer credit cards and heavier balances.

In its quarterly Industry Insights report released Wednesday, the credit-monitoring agency TransUnion revealed that Canadians had 800,000 fewer credit cards in 2016. But the country's total balances still grew 3.3 per cent last year to $94.2-billion. On an individual level, the average credit-card balance grew 2.3 per cent year-over-year to $4,094 in the fourth quarter.

TransUnion suggests that Canadians are becoming more loyal to the credit cards they have, in part thanks to competition among rewards programs. This could have a positive spinoff for consumers, who could benefit from increased access to credit as providers compete for their business.

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Fewer cards in circulation reverses credit-card trends in recent years, said Chris Dias, TransUnion Canada's senior vice-president of product innovation and analytics, in an interview. This has helped boost competition among card providers an "unprecedented" amount. "Lenders are actually having to compete for that dollar, and they're doing so by incentives and offers," Mr. Dias said.

The agency found that higher balances were being incurred across all consumer credit risk tiers, pushing credit limits upward – which TransUnion believes will continue in response to increased card loyalty.

Jay Harris, a licensed insolvency trustee and founding partner of Harris & Partners Inc. in Markham, Ont., said that the fewer-cards, more-spending trend may have a demographic skew. Millennials tend to be inclined to use debit cards for transactions, while their elders are taking advantage of loyalty programs, he said.

"All the card companies are promoting their benefits, whether it's Air Miles, travel benefits or purchase benefits," Mr. Harris said. "That's why people stick to the one or two cards."

Still, the increases to credit limits should come with a caution, the trustee continued: "You should only spend on your credit card an amount that can be paid off in full at the end of the borrowing period."

Wednesday's TransUnion report follows one from last month that found Canadians who go above and beyond minimum monthly payments are less likely to fall into delinquency. It also found two in five consumers weren't certain about that trend and other benefits that come with prudent debt payments.

Delinquency rates went up "modestly" across Canada, with a 90-plus-day credit-card delinquency rate at 4.21 per cent in 2016's fourth quarter. That's up 3.2 per cent from the same period in 2015.

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After a rough year, energy-focused Alberta and Saskatchewan saw increases of more than 22 per cent in that time – a byproduct of the oil-price slide that TransUnion warned of in 2015. Large provinces with less energy-centric economies such as Ontario and British Columbia actually had delinquency rates fall.

Mr. Dias said that, barring a major macroeconomic event in the next year or two, broader credit access should not have negative implications for consumers given current debt-management trends. Delinquencies could even fall across the broader population in that time.

Overall consumer credit "performed well" in 2016, Mr. Dias said, as Canada saw modest employment gains. On average, non-mortgage debt balances rose 2.18 per cent between fourth-quarter 2015 and 2016, to $21,444. The non-mortgage delinquency rate was 2.65 per cent in the fourth quarter, down 1.92 per cent.

Lenders use scores from credit reports to determine what rates and terms consumers can get when applying for everything from higher credit-card limits to mortgages. Along with Equifax Canada, TransUnion is a major provider of credit reports for Canadian consumers, and uses data from its national consumer credit database for regular market analyses such as the one released Wednesday.

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