Addressing Credit Challenges for New-to-Canada Consumers
Financial inclusion is crucial in a country that welcomes so many new people each year — nearly 500,000 immigrants (permanent residents) in 2022, plus many more non-permanent residents*. Almost one-third of Canadians have limited or no credit history, which can impact their ability to get access to critical products and services in the financial ecosystem**.
A recent whitepaper published by Statistics Canada and Equifax Canada analyzes data from the 2016 and 2019 Survey of Financial Security to study the extent to which immigrants to Canada have access to credit and whether they are credit invisible.
Where are some of the gaps in financial inclusion in Canada today?
Many Canadians face financial inequality partly driven by a lack of equal access to larger credit amounts for products such as an auto loan or mortgage. These products can have a significant impact on an immigrant's daily life and ability to create wealth. With an estimated more than 3 million Canadian adults (people aged 18+) deemed “credit invisible,” (meaning they do not have a sufficiently long and recent credit history for a credit reporting agency to calculate a credit score for them) the financial services industry needs to find new ways to assess creditworthiness and expand access to credit.
Approximately 1.5 million new immigrants are expected to arrive in Canada over the next three years and financial institutions have a great opportunity to help this growing customer base achieve their financial goals. However, lenders will first need to better understand the financial hurdles that new-to-Canada consumers experience.
What financial hurdles do newcomers face?
Typically, new-to-Canada consumers don’t have a Canadian credit history and their credit records from their home country can be very difficult to access by Canadian lending institutions. Without adequate information which would allow financial institutions to adjudicate or extend credit to consumers, lenders commonly manage their risk by either declining these applicants or offering credit products tied to guarantees or those that are secured in some way.
As a result, recent newcomers to Canada have less access to certain credit products, which can result in reduced availability to the housing market and long-term equity investment opportunities.
How can the financial and credit industries help those who are new to Canada?
Improving financial inclusion benefits everyone: lenders connect with a broader set of Canadians, while those who would be traditionally excluded can potentially have their access to credit options improved.
A potential source of credit information could come from credit scores that leverage alternative, non-traditional, data sources. Scoring with alternative data sources can have meaningful predictive and economic value to lenders extending credit to individuals with thin credit files or no traditional credit histories. This type of scoring can be generated for most individuals who lack traditional credit scores, and those individuals who lenders would otherwise have very little information on which to base their credit decisions.
These alternative data sources include:
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Neighbourhood street level data
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Older trades and inquiries
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Telecommunications data trades
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Rental data
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And others such as utilities, pay day loans, and more.
To read more about the findings and analysis of immigrants’ credit visibility, the full study can be found here.
For more information on serving new-to-credit customers, visit our website. You can reach us directly at 1-855-233-9226 and follow us on Twitter and LinkedIn.
*Source: Statistics Canada. Table 17-10-0008-01 Estimates of the components of demographic growth, annual
**Source: Equifax Canada 2023
This article is published by Equifax Canada Co.® 2024. All rights reserved. No part of this article may be reproduced, copied or transmitted in any form or by any means, or stored in a retrieval system of any nature, without the prior permission of Equifax Canada Co. This article is for informational purposes only and is not intended to be legal or business advice.
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