A Transforming Financial Landscape: Analysis on Immigrant Credit Visibility in Canada
Credit is a central aspect of Canada’s modern economy. A recent whitepaper published by Equifax Canada and Statistics Canada uses 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.
Credit visibility and invisibility
A person is credit invisible if they do not have a sufficient credit history for a credit reporting agency to be able to calculate a credit score. Additionally, consumers may have limited credit information on their file (also known as a “thin file credit file”) meaning that, while a credit score may be able to be calculated, the accuracy may be limited. Without adequate information which would allow financial institutions to adjudicate or extend credit to consumers, lenders commonly decline these applicants to limit their risk. This can stand in the way of building consumer loyalty and increasing the financial opportunities of newcomers to Canada and new-to-credit consumers.
The study’s research on immigrant credit access identifies two main areas of focus:
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Access to credit remains part of the larger issue of financial exclusion, defined as “the exclusion of an individual or individuals from the formal banking system.”
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A potential source of credit information could come from credit scores that leverage alternative, non-traditional, data sources.
Immigrant access to credit and financial inclusion
New immigrants are generally eager to build a credit profile and to obtain credit visibility. Often, the first two actions they take when first establishing themselves in Canada are obtaining a cell phone and acquiring a low-limit or secured credit card. Despite these actions resulting in creating a credit file, the depth of credit history may not yet be adequate to qualify for products with larger credit amounts such as automobile loans or mortgages. These products can have a significant impact on an immigrant’s daily life and ability to create wealth.
Newly-landed immigrant families (less than two years in Canada) were found on average to be less credit-visible than Canadian-born families. Once established within the country, immigrants quickly became credit-visible, and, over time, immigrant families that had been in Canada for two to four years were actually 3.15 percentage points more visible than comparable Canadian-born families.
Improving credit visibility for immigrants
The study suggests that to minimize credit invisibility and improve a newly-landed immigrants’ ability to access credit, credit bureaus could capture data from new, non-traditional sources on these individuals, such as rent, phone, and utility payments, which could then contribute to the Canadian credit scores of newly-arrived immigrants.
To read more about the findings and analysis of immigrants’ credit visibility, the full study can be found here.
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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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