Credit invisibility happens when an individual’s credit history is too short for an agency to calculate the credit score, or they lack information to calculate credit scores. Due to the widespread significance of building credit in Canada, Statistics Canada has put together a report. This study focuses on credit-building ability & results of new immigrants/ newcomers to Canada.
In order to assess credit invisibility among newcomers, Statistics Canada used data from two years, i.e., 2016 & 2019, from the Financial Security survey. This information was simultaneously used to analyze how much access newcomers had to credit in Canada.
Outcomes
Depending upon the information pooled across both years, over 92.5% of Canadian-born families were classified as credit visible. However, in non-Canadian-born families, this percentage was only met once they were in Canada for between 2-4 years.
Note: The inverse of the presented numbers of credit visibility demonstrated every group’s credit invisibility. For instance, if Canadian-born families had credit visibility of 92.5%, then this implies that 7.5% of families in the group are credit invisible.
Notably, families in Canada for 2-4 years had credit visibility of 93.9%. Before being in Canada for two years, this number was just 85.2%.
Moreover, credit visibility among non-Canadian-born families rose until the ‘10-19 years in Canada’ group. Well, after this, the figure declines.
What Factors Influenced Credit Visibility?
Notably, the difference in the visibility of credit in Canada-born families & non-Canada-born families for less than two years dissipated once financial as well as demographic attributes were considered.
Mainly assessed across numerous models with different numbers of coefficients, this study looked at the following seven general factors to determine their effect on credit visibility among newcomers.
- Household Size
Households with more than 3 people were likely to be credit-visible.
- Age
Older survey participants were likely to experience higher credit visibility.
- Education
More educated families proved to be credit visible. A person with a high school diploma or trade diploma demonstrated that education affects credit scores.
- Income & Assets
More income & assets among surveyed family members implied that they were credit-visible. According to the report, this is because higher income & a significant number of assets make it quite easier to acquire credit in Canada.
- Employment
Families with better employment opportunities in Canada had more credit visibility with lower employment levels. As per the study, this is because employment makes it easier to get credit from financial institutions.
- Language
Credit visibility was higher for families who spoke French/ English or both languages.
- Years In Canada
Canadian immigrants for less than two years were likely to be credit visible because it takes time to build credit in Canada as a newcomer.
Conclusion
What was known before the beginning of the study is that newcomers do not have a credit history in this nation. Simultaneously, in certain cases, credit history from a newcomer’s home country is not available.
Through this study, it has become clear that although newcomers are generally eager to build credit in Canada & become credit visible, they are often not able to access all credit products timely.
Specific products, like mobile phones or secured low-limit cards, are easy for newcomers to access. However, these products are enough for opening a credit file for newcomers. In simpler terms, they leave an immigrant with insufficient credit history. Thus, this group remains credit invisible for a significant portion of their time in the nation.
Meanwhile, because of a newcomer’s inability to get various higher-limit credit products as they arrive in Canada, they cannot acquire approval for large amounts of credit on prominent credit terms. These things include car loans, mortgages, etc.
However, lack of access to these credit products has a significant effect on newcomer’s everyday life & their capability to create wealth.
Thus, in an effort to rectify such problems & allow newcomers to minimize credit invisibility & better access credit, the creators of this report made a key suggestion:
‘Credit bureaus obtain data from new, non-traditional resources, like utility payments, rent, etc., made by newcomers.’
This recommendation represents that a strategic change like this would enable newcomers to access credit in Canada & become credit visible. Well, that’s because this would give credit reporting agencies a pathway to inform the credit scores of newly arrived newcomers & do the same at the earliest.