Canada is a welcoming land for immigrants from all corners of the globe. While embarking on a new life in a different country is an exciting adventure, it also presents its share of challenges. One significant challenge is establishing a credit history in Canada.
A recent study conducted by Statistics Canada provides valuable insights into the credit-building journey of new immigrants in the country.
In this article, we will dive into the study’s key findings and explore practical steps that new immigrants can take to lay a solid foundation for their credit history.
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What is Credit Invisibility?
Credit invisibility occurs when an individual lacks a sufficient credit history for credit reporting agencies to calculate a credit score accurately.
In Canada, having a good credit score is vital for various financial activities, including securing car loans, student loans, and mortgages.
Canadian-Born Families vs. Non-Canadian-Born Families
According to the study, a striking 92.5% of Canadian-born families are classified as credit visible, which means they have an established credit history.
In contrast, non-Canadian-born families achieve a similar level of credit visibility (93.9%) after residing in Canada for a period ranging from two to four years.
Interestingly, credit history 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.
Factors Influencing Credit Visibility
The study found that several factors significantly influence credit visibility among new Canadian immigrants:
- Household Size: Larger households, with three or more people, are more likely to be credit visible.
- Age: Older individuals tend to have higher credit visibility. So, the longer you’ve been around, the more credit history you can build.
- Education: The data analyzed by StatsCan reveals that more educated families are more credit visible. Individuals with a college or trade diploma were more likely to be credit visible than those with a high school diploma or less education.
- Income and Assets: Families with higher income levels and more assets are more likely to be credit visible. Having a comfortable income and substantial assets makes it easier to access credit.
- Employment: Having a stable job in Canada positively impacts credit visibility. The study emphasizes that employment is a key factor in acquiring credit from financial institutions.
- Language: Families that speak either English, French, or both official languages of Canada tend to have higher credit visibility compared to those who speak neither language.
- Years in Canada: It’s only natural that immigrants who have been in Canada for less than two years are less likely to be credit visible. Building credit takes time, and this process is especially gradual for newcomers in a new country.
Note: Statistics Canada explains the sharp decline in credit visibility among non-Canadian-born families after 60 years in Canada as a likely “generational effect” because they may not have needed credit in the past.
Challenges Faced by New Immigrants
New immigrants often encounter difficulties accessing larger credit products such as car loans and mortgages due to their limited credit history.
This limitation has a significant impact on their daily life and wealth-building opportunities.
Key Recommendations For Credit History
Diversify Data Sources
Credit bureaus could enhance their reporting by including data from non-traditional sources such as rent, phone, and utility payments made by immigrants.
This change would enable credit reporting agencies to inform the credit scores of newly arrived immigrants earlier.
Financial Education
Empower yourself with knowledge about the Canadian financial system.
Understand how credit works, the importance of timely payments, and how to manage your finances responsibly.
Start Small
Begin your credit journey by applying for smaller credit products like secured credit cards and cell phone plans. Timely payments on these items contribute to building a credit history.
Conclusion
Building a credit history is a journey, especially for new immigrants in Canada. By understanding the challenges and taking proactive steps, immigrants can empower themselves financially. Patience and consistency are the keys.
With time and responsible financial habits, every new immigrant can achieve a strong credit standing in Canada.
