Financial institution Borrowell warns of the potential threat posed by “revenge spending” once the economy fully reboots, which could hurt the credit ratings and purchasing power of Canadians in the long run.
Borrowell estimated that Canadians accumulated $ 212 billion in savings during the pandemic, $ 184 billion more than pre-COVID levels. However, with the gradual reopening of the economy, household spending patterns in the near future are expected to tilt sharply towards spending.
“Naturally, many Canadians will be increasing their spending on food, clothing, social activities, travel and more as the country gradually opens up to a new normal,” said Andrew Graham, co-founder and CEO of Borrowell . âBut they should be cautious about ‘revenge spending’ after the past 16 months. Average credit usage in Canada is already above the recommended rate of 30%, and this could increase further as more and more spending opportunities become available.
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Aggregated credit report data from over 978,000 Canadians showed that the average credit utilization rate is currently 43.5%, while the average revolving balance is $ 10,361. The implied average credit limit (revolving balance divided by the usage rate) is $ 23,818.
Based on these benchmarks, Borrowell said achieving a 30% or less utilization rate in today’s climate would involve either reducing the average revolving balance by $ 3,215 or more while maintaining the same credit limit, either increase the credit limit by $ 10,718 or more while not changing the balance.
âWe encourage Canadians to manage their finances prudently over the coming months,â Graham said. âThe build-up of credit card debt during the summer months can weigh on credit utilization rates and credit scores, jeopardizing long-term financial goals. “