Global analytics software leader FICO announces the average FICO® Score of Canadian borrowers remained steady from last year’s score of 762. Despite this year-over-year stability, multiple factors indicate that Canadians may be heading into a period of economic uncertainty.
Used by 90 per cent of the top Canadian lenders and credit unions, FICO® Scores are the industry standard for helping lenders make more accurate decisions about a consumer’s credit risk. The average FICO Score of Canadian consumers can provide a baseline metric of the nation’s credit health.
FICO’s recent analysis reflects economic headwinds both present and potentially looming such as persistent inflation, rising interest rates in response to the highest Consumer Price Index (CPI) levels in decades, and hourly wages unable to keep pace with the rising CPI. Competing factors such as robust employment growth and rising household incomes have helped to offset the economic strain Canadian consumers are experiencing.
“Persistent inflation, historically high interest rates, and growing affordability challenges are all major characteristics of the current Canadian credit landscape,” said Ethan Dornhelm, vice president of Scores and Predictive Analytics at FICO. “The current economic uncertainty underscores the importance of transparency; FICO is committed to sharing the annual average Canadian FICO Score and key insights into the state of credit in Canada to encourage open, fact-based discussions between consumers, lenders, and regulators.”
When examining credit delinquencies as of April 2023, there was an 11 per cent year-over-year uptick in the percentage of Canadian credit borrowers that were more than 90 days past due on their credit obligations in the previous six months. However, while credit delinquency rates are rising, they have not yet returned to pre-pandemic levels.
While the uptick in credit delinquencies appears to have been driven primarily by bankcard and line-of-credit products, the Canadian high-interest rate environment may impact repayment behaviour on auto, finance, and mortgage originations and renewals throughout 2023 and 2024.
“We have been early adopters for FICO Score 10, as it provides our organization with enhanced predictive capabilities,” said Curtis Gergley-Garner, chief risk officer at Canada Guaranty. “Using FICO Score 10 as part of our comprehensive adjudication process has helped improve our decision-making efficiency and deliver great service to our lender partners while delivering a superior loss performance. We welcome FICO announcing insights into the current state of credit in Canada. It allows us to have transparent conversations with lenders and regulators, using concrete data and insights that explain the current financial health of the industry.”
The amount of debt that Canadian borrowers hold is also a key metric to help better understand what may be on the horizon. The early stage of the pandemic saw the average Canadian credit consumer reduce their credit card balances by 13 per cent, from $5,920 in April 2020 to $5,150 in April 2021. This appears to have been driven in large part by government stimulus and limited spending on travel, dining, and entertainment.
Average credit card balances then increased modestly as of April 2022 to $5,281 but increased by a relative 6 per cent in April 2023 to $5,616. Average credit utilization for the Canadian credit consumer has followed a similar trend, and is now at 28.4 per cent, just 0.3 per cent shy of pre-pandemic credit utilization levels.
Why Consumers Need to Know Their FICO® Score
As an integral component of the credit and financial ecosystem, FICO® Scores help millions of people worldwide gain access to the credit they need to do things like purchase a car, buy a home, or get a credit card.
FICO® Scores are dynamic as they interpret and summarize evolving consumer behaviour captured in the credit bureau data, which is stored and maintained by the two Canadian consumer reporting agencies. Monitoring the average FICO Score of Canadian borrowers has become a key barometer of the overall financial health of the Canadian credit population.
Knowing that access to credit is a key building block for economic inclusion and wealth building, FICO has created the FICO® Score Open Access program to promote credit transparency by enabling lenders to provide their customers with the ability to see their FICO® Score for free.
“We adopted the FICO Score Open Access program earlier this year to provide credit transparency for our members,” said Bruce Hodges, founder and CEO at Parachute. “Making FICO Scores available to consumers provides that extra layer of transparency for both Canadian lenders and consumers and establishes a standard benchmark for the industry.”
To learn more about the average FICO® Score in Canada, read the full data report, HERE. Lenders interested in the FICO Score solutions in Canada should visit: FICO® Score 10 and FICO® Score Open Access.
FICO (NYSE: FICO) powers decisions that help people and businesses around the world prosper. Founded in 1956, the company is a pioneer in the use of predictive analytics and data science to improve operational decisions. FICO holds more than 200 US and foreign patents on technologies that increase profitability, customer satisfaction and growth for businesses in financial services, insurance, telecommunications, health care, retail, and many other industries. Using FICO solutions, businesses in over 100 countries do everything from protecting 2.6 billion payment cards from fraud, to improving financial inclusion, to increasing supply chain resiliency. The FICO® Score, used by 90 per cent of top Canadian lenders and credit unions, is the standard measure of consumer credit risk in Canada. FICO Scores have been made available in over 40 other countries, improving risk management, credit access and transparency.
Source : Yahoo Finance