When an individual’s credit history is too short for a reporting agency to compute a credit score, or they lack enough information to calculate “the most” accurate credit ratings, credit invisibility occurs.
Statistics Canada (StatsCan) put together a study that was released Wednesday due to the widespread relevance of creating credit in Canada – whether to finance a vehicle, apply for a student loan, or obtain a house, among other things. This research looked at the credit-building abilities and consequences of incoming Canadian immigrants.
Stats Can analyzed data from the Survey of Financial Security from two years (2016 and 2019) to measure credit invisibility among recent Canadian immigrants. This information was also used to determine how much credit immigrants to Canada had in general.
Results
According to data from the 2016 and 2019 versions of the Survey of Financial Security, 92.5% of Canadian-born households are credit visible. This percentage was only met/exceeded among non-Canadian-born families after they had been in Canada for two to four years.
The inverse of the reported credit visibility figures reflected each group’s credit invisibility. For example, if Canadian-born families have a credit visibility rate of 92.5%, 7.5% of those households are credit invisible.
Families in Canada had a credit visibility rate of 93.9% over two to four years. This proportion was only 85.2% before moving to Canada for two years.
Surprisingly, credit visibility among non-Canadian-born families increased steadily until the “10-19 years in Canada” category, after which it decreased.
What factors influenced the visibility of credit?
Notably, once financial and demographic data were addressed, the difference in credit visibility between Canadian-born families and non-Canadian-born families in the country for less than two years vanished.
More specifically, although being evaluated across different models with varying numbers of coefficients, this study examined the seven main criteria listed below to establish their impact on credit visibility among new Canadian immigrants.
Size of the Family
Credit visibility was higher in households with more than two (three or more) people.
Age
According to the study, when age was considered alone, older survey participants were more likely to have higher credit visibility.
Education
According to the data analyzed by StatsCan, more educated families were more credit visible.
“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
A surveyed family with higher income and assets was generally more credit-visible. According to StatsCan, this is because higher income and a greater quantity of assets make credit more accessible.
Employment
Families in Canada with higher levels of work were more credit-visible than families with lower levels of employment. This is because employment makes it simpler to “acquire credit from financial institutions,” according to the report.
Language
Credit visibility was higher for families that spoke English, French, or both of Canada’s national languages than for those who spoke neither.
Years spent in Canada
Because it takes time to build credit as a newbie to a strange nation, immigrants in Canada for less than two years were naturally less likely to be credit visible. The table at the top of this article depicts the level of credit visibility among new immigrants as a function of time in Canada.
Note: StatsCan attributes the dramatic fall in credit visibility for non-Canadian-born families after 60 years in Canada to a “likely… generational effect” and the possibility that “they may not have had a need for credit and thus [did not] have any credit products.”
Conclusions
Prior to the start of the study, it was known that new Canadian immigrants do not have a credit history in this nation. Simultaneously, credit history from an immigrant’s native country may be unavailable in some situations.
This study revealed that, while immigrants are generally motivated to build credit and become credit visible, they are frequently unable to access all credit products in a timely manner.
Certain products, such as a cell phone and a secured or low-limit credit card, are simple to obtain for newcomers to Canada. These items, however, are only adequate for starting a credit file for new Canadians. In other words, they continue to leave Canadian immigrants with a poor credit history. As a result, for the majority of their tenure in this country, this group is practically invisible.
Meanwhile, because immigrants are unable to access a range of higher-limit credit products fast when they arrive in Canada, they are unable to obtain approval for bigger amounts of credit on more substantial credit items. These include things like a vehicle loan or a mortgage.
According to the StatsCan report, a lack of access to these larger credit products “can have a significant impact on an immigrant’s daily life and ability to create wealth.”
As a result, the authors of this paper make one critical suggestion in an effort to address these issues and help immigrants to both lessen credit invisibility and better access credit.
“Credit bureaus could capture data from new, non-traditional sources, such as rent, phone, and utility payments” made by newly arrived Canadians. According to this idea, such a strategic adjustment would help new immigrants to Canada to obtain credit and become more credit visible sooner since credit reporting companies would be able to “inform the Canadian credit scores of newly arrived immigrants and [do so] earlier.”
