Newcomer access to credit in Canada improves over time, according to new study

Credit invisibility occurs when an individual’s credit history is too short for a reporting agency to calculate a credit score, or they lack enough information to calculate “the most” accurate credit scores.

Due to the widespread importance of building credit in Canada – whether to finance a vehicle, apply for a student loan or acquire a mortgage, among other things – Statistics Canada (StatsCan) put together a study that was released Wednesday. This study focused on the credit-building ability and outcomes of new immigrants to Canada.

To assess credit invisibility among recent Canadian immigrants, StatsCan used two years of data (2016 and 2019) from the Survey of Financial Security. This data was simultaneously used to analyze how much access immigrants to Canada had to credit in general.

Results

Based on data pooled across the 2016 and 2019 versions of the Survey of Financial Security, 92.5% of Canadian-born families were classified as credit visible. Among non-Canadian-born families, this percentage was only met/exceeded once they were in Canada for between two and four years.

Note: The inverse of the presented numbers for credit visibility indicated each group’s credit invisibility. For example, if Canadian-born families had a credit visibility percentage of 92.5%, that means 7.5% of families in that group are credit invisible.

Specifically, families in Canada for two to four years had a credit visibility percentage of 93.9%. Prior to being in Canada for two years, this figure was only 85.2%.

Interestingly, credit visibility among non-Canadian-born families steadily rose until the “10-19 years in Canada” group, after which this figure declined. The exact results are available here.

What factors influenced credit visibility?

Notably, the difference in credit visibility between Canadian-born families and non-Canadian-born families in the country for less than two years dissipated once financial and demographic characteristics were considered.

More specifically, although assessed across several models with a varying number of coefficients, this study looked at the following seven general factors to determine their impact on credit visibility among new Canadian immigrants.

Household Size 

Households with more than two (three or more) people were more likely to be credit visible.

Age

Older survey participants, according to the study, when age was assessed by itself, were more likely to experience higher credit visibility.

Education

More educated families proved to be more credit visible according to the data analyzed by StatsCan.

“A person with a high school diploma or less education was [less likely to be credit visible] than someone with a college or trade diploma, indicating that education does positively affect credit access.”

Income and Assets

More income and assets among a surveyed family often meant that they were more credit-visible. According to StatsCan, this is because higher income and a larger number of assets make it easier to acquire credit.

Employment

Families that had better employment in Canada were more credit-visible than families with lower levels of employment. According to the study, this is because employment makes it easier “to acquire credit from financial institutions.”

Language

Credit visibility was higher for families that spoke English, French or both of Canada’s official languages compared to surveyed families that spoke neither language.

Years in Canada

Immigrants in Canada for less than two years were naturally less likely to be credit visible because it takes time to build credit as a newcomer to a different country. The table towards the top of this article shows the degree of credit visibility among new immigrants as a function of years in Canada.

Note: StatsCan explains the steep decline in credit visibility for non-Canadian-born families after 60 years in Canada as a function of a “likely … generational effect” and the potential that “they may not have had a need for credit and thus [did not] have any credit products.”

Conclusions

What was known prior to the beginning of the study is that new Canadian immigrants do not have a credit history in this country. Simultaneously, in some cases, credit history from an immigrant’s home country is not available.

Through this study, it has become clear that although immigrants are generally eager to build credit and become credit visible, they are often not able to access all credit products in a timely manner.

Certain products, namely a cell phone and secured or low-limit credit card, are easy to access for new immigrants to Canada. However, these products are only sufficient for opening a credit file for new Canadians. In other words, they still leave Canadian immigrants with an insufficient credit history. Therefore, this group remains credit invisible for a large portion of their initial time in this country.

Meanwhile, due to an immigrant’s inability to obtain a variety of higher-limit credit products quickly when they come to Canada, immigrants are consequently unable to acquire approval for larger amounts of credit on more significant credit items. These items include such things as a car loan or a mortgage.

Lack of access to these larger credit products “can have a significant impact on an immigrant’s daily life and ability to create wealth”, says the StatsCan study.

Therefore, in an effort to rectify these problems and allow immigrants to both minimize credit invisibility and better access credit, the authors of this report make one key suggestion.

“Credit bureaus could capture data from new, non-traditional sources, such as rent, phone and utility payments” made by new Canadian immigrants. This recommendation posits that such a strategic change would allow new immigrants to Canada to access credit and sooner become more credit visible because this would give credit reporting agencies a way to “inform the Canadian credit scores of newly arrived immigrants and [do so] earlier.”