Newcomers to Canada are often faced with a financial Catch-22: they need a credit card to build a credit history, but they need a credit history to secure a credit card.
Starting Thursday, lenders will be able to access newcomers’ foreign credit scores and histories through Equifax’s new Global Consumer Credit File (GCCF). Equifax will convert the foreign score to a Canadian one, then make it available to lenders for a fee.
The program aims to make things easier for newcomers, who often struggle to access credit given their lack of a Canadian credit score or history, said Sue Hutchinson, president of Equifax.
“When (newcomers) arrive in Canada, an important part of settling in is to get access to the mainstream financial ecosystem,” said Hutchinson. “They want to get a mobile phone, they want to see an apartment, get a credit card … if you don’t have any credit history, it’s difficult.”
India is Equifax’s top priority with the nation accounting for 27 per cent of Canada’s new permanent residents in 2022, and is the largest source of Canadian international students.
The GCCF will cover 24 other jurisdictions in which Equifax is present, including Brazil and the Philippines.
“We want to ensure that those newcomers can bring their credit history from their own country in a consented and secure way,” said Hutchinson, “so that the lenders are able to provide access to credit or maybe a greater amount of credit, knowing more about those individuals.”
Lenders will know the credit score originated from abroad, but they won’t need to do the mathematical modelling or conversions themselves, said Hutchinson.
Credit modelling varies from nation to nation, said Hutchinson. “Lenders here in Canada will know (that) in India X score equals Y score in Canada.” Like the Canadian system, the Indian credit scores range from 300-900.
Richard Goldhar, licenced insolvency trustee at Goldhar & Associates, believes the program will be a boon for newcomers.
“We find that newcomers often end up with subordinate (payday) high interest loans rather than traditionally financed loans,” he said. “They end up suffering,” he said.
To make ends meet, newcomers often have to borrow more, work multiple jobs, and live in multi-generational homes, said Goldhar.
Many of Goldhar’s newcomer clients are on the verge of bankruptcy partly because “they’re always being financed by tier-two banks and lenders with higher interest rates,” he said. Payday loans should be seen as “an absolute last resort,” he said, because they are so difficult to get out of.
If some of his clients had access to converted credit scores to build a credit history here, “maybe they could have made a go of things,” he added.
While newcomers face difficulties getting loans on favourable terms, they’re not completely “shut out” of the market, said Doug Hoyes, licenced insolvency trustee and co-founder of Hoyes, Michalos & Associates. Newcomers should focus on securing a job; many lenders are more concerned about an applicant’s income than their credit score, he added.
He worries that the GCCF will only introduce additional errors and complexity into an already imperfect credit system.
“The vast majority of the credit reports that I see have errors in them,” he said, and are difficult to dispute and correct.
The GCCF may translate inaccuracies from the foreign credit score into the Canadian system, he argued. He wondered whether newcomers would be able to easily dispute errors in their new, converted credit score. If not, the GCCF could be a “disaster” for the borrower.
The Canadian credit reporting system is “broken,” he added.
“We can’t do it right in Canada … Yet now we’re going to take information from some other country that has different standards, different rules, different processes and plop them into a Canadian report?”
Hutchinson doesn’t see any room for error in the conversion and calculation of the score. The company is used to securely and accurately processing huge amounts of data every month, she said. Equifax will regulate and protect the international information just as they would Canadian information, Hutchinson said.
Hutchinson says the GCCF is all about “financial inclusion” for newcomers.
“It’s about creating opportunities for everyone to succeed and contribute to the economy. Equifax is proud to lead the charge in ensuring that newcomers have the tools they need to build a strong financial future here in Canada.”
