Latest news with #delinquency
CBS News
2 days ago
- Business
- CBS News
Student borrowers' credit scores are taking a hit. Here's why that matters.
With student borrowers back on the hook for repaying their loans after years of government leniency, delinquent borrowers are struggling to pay. As a result, their credit scores are getting dinged, hurting their ability to access future credit. Credit scores dropped by more than 100 points for 2.2 million delinquent student loan borrowers from January through March of 2025, according to recent data from the Federal Reserve Bank of New York. For its report, the Fed looked at a borrower delinquency rate based on shares of student loan borrowers with at least one student loan reported as past due or in default. Another one million borrowers experienced credit score drops of at least 150 points for the first three months of 2025. A low credit score makes securing future loans both more difficult and more costly, pushing milestones like buying a home, or saving for retirement, further out of reach. It can even impact one's employment prospects. "The key risk is that this could lead to reduced credit limits and higher interest rates for new loans, which could reduce delinquent borrowers' access to credit, which would then be used for other areas of spending such as on cars and mortgages," Grace Zwemmer, associate economist at Oxford Economics, told CBS MoneyWatch. Some 2.4 million of the newly delinquent borrowers previously had credit scores above 620, which are considered good and would have allowed them to qualify for new car loans, mortgages and credit cards before the delinquencies were reported, Fed researchers said. "These borrowers saw substantial declines in their credit standing in the first quarter and will now face steeper borrowing costs or denial for new credit," Fed researchers said in the report. Grace period expires Student loan repayments were paused at the onset of the COVID-19 pandemic by President Trump in March 2020, during his first term. After multiple extensions of the payment pause by former President Biden, repayments resumed in October 2023. The U.S. Department of Education then instituted a 12-month "on ramp" period which expired in October 2024, to give student borrowers some leniency as they resumed payments. During the transition period, loan servicers did not report missed payments or delinquent loans to credit bureaus, protecting many student borrowers from the worst consequences of not making their payments. Borrowers are considered delinquent on their loans when a payment is more than 90 days late. The pandemic-era pause on repayment had a positive effect on borrowers' credit scores: Between 2019 and 2024, the number of borrowers with credit scores below 620 fell by more than 4 million, as borrowers moved into higher credit score brackets, an analysis from Oxford economics shows. With that grace period having ended on May 5, newly delinquent student borrowers' credit scores are also being dinged, as their failures to pay back their debts are reported to credit bureaus. "Borrowers receiving a new delinquency will see a drop in their credit score. This may signal a reversal of the positive credit score trend seen during the pandemic, which would lead to reduced credit limits and higher interest rates for new loans," Oxford Economics researchers wrote in a report. Long-lasting consequences Substantial drops in delinquent student borrowers' credit scores will have long-lasting ramifications for those affected, including lower credit limits, higher interest rates for new loans and limited access to credit in general, according to experts. "The long-term issue is they'll have trouble accessing other types of loans in the future, like mortgage and car loans. It's easier to build credit scores when you don't have negative data, but when you have a delinquency, it's hard to come out of that. It takes a lot of effort," Tushar Bagamane, CEO of budgeting tool Vola Finance, told CBS MoneyWatch. Consumers with multiple delinquencies report having to pay "exorbitantly high on interest" on larger loans once a delinquency impacts their credit score, Bagamane said. "They have to pay more on their home loans and the cost of those lines of credit affects the income they have left after meeting their essential needs," he said. "The ability to refinance existing loans with a low credit score can be prohibitively expensive and at that point, borrowers are almost left outside the financial system." By that he means they can't achieve milestones like owning a home or acquiring other assets, "which is not a good position to be in," Bagamane added. American dream increasingly out of sight Zwemmer, of Oxford Economics, noted that a delinquency remains on one's credit report for seven years, and so avoiding becoming delinquent on a loan in the first place is the best course of action. If millions of student borrowers drop into lower credit score brackets, it could exacerbate the divide between low-income and higher-income Americans. "Older and lower-income segments of the population will be most impacted, so we'll be looking to see if there's a further bifurcation of U.S. consumers," Zwemmer said. Jason Ackerman, a certified public accountant and co-founder of WealthRabbit, a retirement planning platform, said that as their credit scores drop, those who can least afford to shoulder higher borrowing costs will see their rates rise. "Younger people are getting further behind on the American dream of buying a house and saving for retirement," Ackerman told CBS MoneyWatch. "Their payments get higher — and the more you're putting toward student loans, the less you can put toward other things."
CTV News
3 days ago
- Business
- CTV News
Young people, newcomers fuel new debt growth: TransUnion report
A Visa card is seen in Portland, Ore., Wednesday, May 15, 2024. AP Photo / Jenny Kane The latest TransUnion debt report shows total debt continued to grow in the first quarter compared with the year before, driven mainly by young people and newcomers. The credit-tracking agency says gen Z consumers saw their outstanding balances grow 30.6 per cent from the prior year. The report says total outstanding debt grew 4.7 per cent to $2.5 trillion in the first quarter year-over-year. Delinquencies, or missed payments, were also up 11 basis points year-over-year to 2.7 per cent — mainly driven by new-to-credit consumers. The report also shows subprime consumers continued to struggle as their delinquency rates rose at significantly higher rates than prime and above-prime consumers. Matt Fabian, director of financial services research at TransUnion Canada, says higher balances from high-risk credit consumers signal a critical moment for lenders to reassess risk strategies. This report by The Canadian Press was first published May 28, 2025. Ritika Dubey, The Canadian Press
Globe and Mail
4 days ago
- Business
- Globe and Mail
Canadian Credit Market Reaches $2.5 Trillion in Outstanding Balances, with Gen Z Canadians Accounting for 10% of Credit Growth
Key findings from TransUnion report: New-to-credit Canadians led to greater credit participation, accounting for $2.6 billion in new credit balances in Q1 2025 Subprime consumers are almost twice as likely to go delinquent within 12 months of opening new credit cards, compared to their pre-pandemic cohorts Growing concerns around Canadian consumers experiencing economic strain TORONTO, May 28, 2025 (GLOBE NEWSWIRE) -- The first quarter of 2025 saw mixed outcomes in the Canadian credit market, according to TransUnion's Q1 2025 Credit Industry Insights Report (CIIR). Growth was fuelled by increased borrowing from young Canadians and newcomers. Consumer balances for non-mortgage products rose across most products, driven primarily by below prime consumers. Subprime consumers continued to struggle as their delinquency rates rose at significantly higher rates than prime and above consumers. Regional differences in cost of living and economic conditions also led to varying delinquency trends across provinces. Gen Z Consumers Accelerated Overall Credit Participation with 30.6% Year-Over-Year Growth in New Balances After the decline in interest rates and inflation in late 2024, Canadians' total outstanding balances across all credit products grew by 4.7% year-over-year (YoY) and total outstanding credit debt reached $2.5 trillion in Q1 2025. Continued credit expansion, propelled by younger consumers, including new Canadians entering the credit market, was a key driver of this growth. As Gen Z consumers continued to participate in the credit market, outstanding balances within this generation have grown 30.6% from the prior year, contributing $12 billion or 10.3% of total new balance growth. Canadian newcomers also represent a significant portion of the growing credit market, driving $2.6 billion in new credit balances, a 6.3% increase YoY. 'As a growing share of Gen Z consumers actively engage with credit, lenders face a pivotal opportunity to shape lifelong financial relationships,' said Matt Fabian, director of financial services research and consulting at TransUnion Canada. 'This generation values digital-first experiences, personalized education and brands that align with their values. Prioritizing credit education, fostering early loyalty and offering seamless, mobile-friendly solutions will be key to staying relevant and building trust with these new-to-market borrowers.' Non-Mortgage Balances Continue to Grow, Driven by Below Prime Consumers Non-mortgage debt grew 2.4% as consumer balances continued to increase across most products. However, total non-mortgage debt did not grow equally across all risk tiers. Below prime average consumer balances grew 4.4%, with subprime consumers contributing the highest increase at 6.3%, while prime plus and super prime consumer balances remained mostly flat. Risk Tier Avg. Non-Mortgage Balances per Consumer YoY Change in Non-Mortgage Balances YoY Change in Consumer Card Balances YoY Change in Consumer Personal Loan Balances Super Prime $26,355 0.10% -0.30% 4.50% Prime Plus $26,301 0.10% 1.10% 4.50% Prime $24,983 3.30% 6.20% 4.90% Near Prime $29,681 3.80% 5.90% 4.70% Subprime $23,638 6.30% 5.50% 6.70% The YoY growth in average balances among below prime consumers may be due to these consumers utilizing more credit to augment disposable income in the face of elevated prices. This trend was seen particularly with the growth in credit card and personal loan balances, as these are traditionally the products used by consumers for liquidity. Below prime consumer average balances across these products grew at a faster rate than overall borrower balance growth during this period. Additionally, the data shows regional disparities in the YoY growth rates of non-mortgage debt, although province rankings did not change from the previous quarter. P.E.I. and Newfoundland had the highest average debt per borrower, while Quebec and Manitoba had the lowest. While the gap between the highest and lowest average debt balances across provinces may not appear substantial, even modest differences in average debt per consumer can significantly influence delinquency rates. Consumers in provinces with higher average debt levels may be more susceptible to increases in interest rates as well as higher everyday living costs, making them more vulnerable to financial strain and increasing the likelihood of delinquency, particularly during economic downturns. 'The rise in balances from higher-risk and more vulnerable credit consumers signals a critical moment for lenders to reassess risk strategies and engagement models. Proactive credit monitoring, tailored financial support and early intervention tools can mitigate potential delinquencies while still maintaining consumer access to credit,' said Fabian. 'At the same time, consumers should continue to build financial resilience by understanding their credit profiles, seeking guidance when needed and using credit responsibly. Empowered, informed borrowers are key to a healthier credit ecosystem.' Ranking Average Consumer Non-Mortgage Debt Balance by Province Q1 2024 Q1 2025 YoY Change Canada $25,786 $26,415 2.44% PEI $27,696 $29,364 6.02% NL $27,876 $28,775 3.23% BC $27,656 $28,585 3.36% AB $28,304 $28,403 0.35% ON $26,880 $27,544 2.47% SK $26,683 $26,972 1.08% NS $24,266 $24,929 2.73% NB $23,675 $24,497 3.47% QC $22,152 $22,756 2.72% MB $20,268 $20,802 2.63% Lower Canada Consumer Credit Index Reflects Weakening Market Conditions Economic uncertainty has recently muted credit demand while supply remains strong. Additionally, uncertainty has shifted some credit behaviours as consumers balances have increased while credit performance has remained relatively stable from prior year, driving the Canada Consumer Credit Index to 100.3, down almost 6 points from the prior year. Differing Impact of Economic Volatility Across Risk Tiers A widening financial divide is emerging among credit consumers across Canada. While recent improvements in inflation and interest rates have provided relief for some, enabling them to reduce debt and strengthen their financial positions, others continue to face significant challenges. These consumers are still grappling with the prolonged effects of past economic volatility, highlighting an uneven recovery and growing disparity in financial resilience. Overall consumer-level serious delinquency (consumers 60 days or more delinquent on any credit product) was up 11 basis points YoY to 2.71% in Q1 2025. This increase was driven in part by the recent growth in new-to-credit consumers, who generally carry higher risk in their early years due to their limited credit experience. Even with the recent increase, the current levels of delinquency are similar to those seen prior to the pandemic. Subprime consumers have become more likely to experience delinquency soon after opening a new product, with the delinquency rate within the first six months of opening a new credit account doubling between 2020 and 2024. This is particularly evident for below prime credit card and personal loans, where consumers may be more sensitive to interest rates. Subprime consumers that opened a credit card in 2023 or 2024 were 1.7x–2.0x as likely to go delinquent within the first 12 months of holding that card than those who opened a card in 2020. These findings further demonstrate the increased vulnerability that subprime borrowers have to macroeconomic factors such as higher interest rates and increased cost of living. Delinquency (90+ DPD) in the First 12 Months on Subprime Card Originations Q1 2020 Q1 2021 Q1 2022 Q1 2023 Q1 2024 12 Months on Book 6.46% 9.18% 11.86% 12.68% 10.76% Geography is also playing a role in the vulnerability or resilience of consumers. A 16 basis point YoY increase in serious consumer delinquencies led to Alberta continuing to have the highest rate across all provinces in Q1 2025, driven by the volatility in oil and gas prices that play a large role in Alberta's economy. While Quebec remained the province with the lowest rate of delinquencies, it had a seven basis point increase YoY. 'We've seen volatility in delinquency rates attributed to a mix of regional economic pressures and demographic factors. Regional variations in both cost of living as well as wage growth, along with pressure from macro-economic cycles, disproportionately impact specific regions, and hence some provinces have had more volatile consumer credit performance,' Fabian said. 'These findings underscore the importance of regionally tailored lending policies and support systems to address the unique challenges faced by those households. Additionally, consumers in more vulnerable areas should stay vigilant in keeping current on payments, monitoring credit and building emergency savings.' About TransUnion (NYSE: TRU) TransUnion is a global information and insights company with over 13,000 associates operating in more than 30 countries, including Canada, where we're the credit bureau of choice for the financial services ecosystem and most of Canada's largest banks. We make trust possible by ensuring each person is reliably represented in the marketplace. We do this by providing an actionable view of consumers, stewarded with care. Through our acquisitions and technology investments we have developed innovative solutions that extend beyond our strong foundation in core credit into areas such as marketing, fraud, risk and advanced analytics. As a result, consumers and businesses can transact with confidence and achieve great things. We call this Information for Good ® — and it leads to economic opportunity, great experiences and personal empowerment for millions of people around the world. For more information visit: For more information or to request an interview, contact: Contact: Katie Duffy E-mail: Telephone: +1 647-772-0969 Photos accompanying this announcement are available at
CBC
4 days ago
- Business
- CBC
1.4 million consumers missed a credit payment in Q1, says Equifax report
There's a deepening divide between consumers in the face of economic uncertainty as those missing payments rose compared with a year ago, a new Equifax report shows. Rebecca Oakes, Equifax Canada's vice-president of advanced analytics, said much of the trend stems from the high cost of living, growing unemployment and rising trade tensions. "In order for anybody to kind of keep making the payments, you need to have an income, you need to have good employment," said Oakes. "When there's economic uncertainty, that does create a few impacts." The report found one in 22 consumers, or 1.4 million people, missed at least one credit payment during the first quarter, even as the average monthly credit card spend fell by $107 per cardholder. "We actually think this is more to do with pulling back on that discretionary spend. And that is going to have a knock-on impact to business and that ultimately will have a knock-on impact to employment levels," she said. "It's all kind of interlinked a little bit when you start to see that economic uncertainty." Credit card delinquency rates up among young people The report said consumer-level delinquency rates among non-mortgage holders rose 8.9 per cent year over year, compared to 6.5 per cent for mortgage holders. Average non-mortgage debt per consumer rose to $21,859 in the first quarter, the report said, mainly driven by a strong auto loan market as buyers looked to lock in car purchases before prospective tariff-induced price hikes. Younger consumers appear to be having a tough go, the report showed. Credit card delinquency rates among that cohort was 5.38 per cent, up 21.7 per cent year over year. "If you have got credit commitments and your day-to-day living costs go up or it's harder to get employment, or maybe your incomes haven't risen at the same amount as cost of living, then it's just harder to keep making the payments that you've committed to," Oakes said. The total consumer debt grew to $2.55 trillion in the first three months of 2025, up four per cent year over year, but down more than $6 billion from the end of 2024, the report showed. A high number of mortgage renewals also added to increased levels of debt. Many homeowners who locked in low interest rates at the beginning of the COVID-19 pandemic are looking at mortgage renewals, which Oakes called "the great renewal." Ontario became a hot spot of financial stress during the first quarter, the report showed. The province's 90-plus day mortgage delinquency rate surged to 0.24 per cent since last year. "We are just seeing missed payments linked to consumers that have a mortgage in Ontario go up and up," Oakes said.
Globe and Mail
5 days ago
- Business
- Globe and Mail
Borrowers increasingly struggling with mortgage and credit card debt, analysis shows
A number of red lights are flashing across the dashboard of Canada's consumer credit market, according to an analysis released Tuesday by Equifax. On everything from credit cards to mortgages, a growing share of borrowers is increasingly struggling to make their monthly debt payments, the numbers suggest. The report, which records data from the first three months of 2025, offers a gauge of the financial health of Canadian borrowers amid sputtering economic growth, rising unemployment and stubborn inflation. Signs of strain are particularly acute among young people and those living in Ontario, with missed payments rising even as many consumers are cutting back on spending, the data suggest. Excluding mortgages, the severe delinquency rate – the proportion of the total debt balance on which consumers have missed payments for 90 days or more – has reached 1.6 per cent. That is its highest level since 2010 when Canada was reeling from the effects of the global financial crisis, said Rebecca Oakes, vice-president of advanced analytics at Equifax Canada. 'That is not yet showing signs of levelling off to any degree. So that's where we are particularly concerned,' she added. Mortgage rates are battling a weak economy and persistent inflation, and inflation may be winning Delinquencies are rising even as Canadians are dialling back their credit card use. Average monthly spending per credit card holder in the first three months of the year was the lowest it has been since March of 2022, according to the report. But consumers are also paying off a smaller share of their monthly credit card bills than they used to. The shift has been especially dramatic among those under 35, who are now paying just under $59 of every $100 on their credit card balance, down from nearly $63 a year ago. The economic volatility of the past three years, which have seen inflation accelerate, interest rates go up and, more recently, jobless numbers creep up, has been particularly tough to navigate for younger consumers, who typically have lower incomes and less savings, said Ms. Oakes. The unemployment rate among 15- to 24-year-olds was around 14 per cent in April, around twice the overall jobless rate of 6.9 per cent, according to Statistics Canada. A shaky labour market may also help to explain why Ontario has emerged as what the report dubbed 'a hotspot for financial stress in Canada.' For young Canadians, the toughest job market in decades is threatening their financial futures Even before U.S. tariffs began hitting employment in Ontario's manufacturing sector in April, the province already had the highest jobless rate in Canada, along with Prince Edward Island. Ontario is also at the forefront of Canada's current wave of mortgage renewals, a treacherous moment for many financially overstretched borrowers. Scores of homeowners who bought properties in the pandemic housing boom are now facing loan renewals at higher interest rates, which is sending some households over their financial tipping point, Ms. Oakes said. For mortgage debt in Ontario, the severe delinquency rate rose to 0.24 per cent in the first quarter of the year, a hefty 72-per-cent increase since the same period in 2024, the data show. Across Canada, mortgage delinquency levels have risen to the highest they've been since the period around 2016 and 2017, shortly before Ottawa introduced mortgage stress tests, a stricter way of vetting mortgage applicants' finances to prevent overborrowing. Those rules caused the number of missed mortgage payments to drop and remain lower for years, Ms. Oakes said. But now mortgage delinquencies have crept back up even with the stress test in place, she noted.
