Credit scores are among the most important three digits in modern life.
If someone’s score is low, a landlord may reject their rental application. Lenders may turn them down for an auto loan. Banks might not even let them open an account. In the absence of solid financial products, many turn to prohibitively expensive and high-risk options like payday loans.
Roughly three to five million Canadians suffer from bad credit or no credit — and Equifax Canada president Sue Hutchison sees it as her mission to make their lives easier.
“We’re doing a lot of work now and talking with a lot of the lenders,” she says. “How do we get to these folks and make sure we’re giving them increasing access to credit in Canada?”
As the head of one of Canada’s two main credit bureaus, Hutchison has a bird’s-eye view into the financial vitality of consumers nationwide. Right now, it isn’t great. Canadians are more indebted than consumers in many other Organisation for Economic Co-operation and Development countries, and the ongoing inflationary crisis is squeezing credit card and mortgage holders.
Even with inflation dropping to 5.2 per cent in February, Hutchison sees storm clouds on the horizon, especially as homeowners see the Bank of Canada’s hefty rate hikes baked into their next mortgage. But small businesses, new Canadians, and renters also aren’t having an easy time of it, either.
Hutchison spoke to the Star earlier this week:
How do you think about your credit score?
I don’t really think about it for myself. I’m fortunate enough that I have a good credit score, and I enjoy a good life. I didn’t think about it as much even though I was in lending and commercial banking roles. I think more about the people who don’t have a credit score, or don’t have a good credit score. Even though I’ve worked in financial services most of my career, running the largest credit bureau in Canada means I feel more of a responsibility to do right by Canadians, and new Canadians. As it turns out, we — the big banks, the little banks, the lenders — actually aren’t.
We haven’t really modernized how we think about credit scoring. A lot more Canadians are renting versus buying homes, but rental payments don’t show up on your credit score, even though you’re demonstrating an ability to pay, a capacity to pay, and a track record of paying. Similarly, some of the teleco data isn’t incorporated into credit scores. In Canada, we’re one of the few jurisdictions where utilities don’t report to credit bureaus.
If you think about new Canadians — they probably get a mobile phone and then they probably try to rent an apartment. Guess what, you need a credit score to rent an apartment. So they’re putting cash up or staying with friends. Their journey to settle into this country probably takes longer because the banks — while they’re trying to do their best — are assessing them based on models that have been in place for decades.
How does Canada compare with the rest of the world when it comes to dependence on credit scores for financial products?
I would say we use them a lot. I began my career working for a U.S. bank, and in the U.S., the level of awareness and understanding of credit scoring was so much higher before it was in Canada. I think part of the reason was that we didn’t do a lot of risk-based pricing 20 or 30 years ago. If I had a score of 720, and someone else had a 640, we probably paid the same interest rate. We also didn’t have a lot of subprime lending in Canada.
So it’s very well-used in this jurisdiction similar to the U.S. and some of the other developed countries. In Latin America, they use a lot of alternative data. In some countries, they don’t have credit bureaus. They’re using different lending data to make lending decisions.
Canada has a high rate of consumer debt, and credit card spending has gone up in 2022 compared to previous years. Are you seeing the results of that in the form of lower scores, or more defaults?
Certainly, during the pandemic, we saw a lot more disposable income for certain segments of the population. Working people were either getting subsidies from the government and putting those in the bank, and people like me weren’t paying for gas or their TTC pass. Their lifestyles became less expensive, and they weren’t able to travel and go to restaurants. We actually saw an improvement in credit scores of about 10 to 20 points across the board, similar to the U.S.
Now what we’re seeing is a lot more pressure on certain parts of the economy, where some workers are being encouraged to go back to the office. They’re seeing the price of groceries escalate, the price of gas escalate, and their lifestyle is costing more. One of the things we worry about a lot is what we’re calling the ‘payment shock’ that could be coming. Canadian consumers are going to see a big jump in their mortgage payments.
We measure things like whether Canadians are paying off their credit cards each month, or are they just paying off the minimum amount and letting that balance accumulate interest. We’re seeing more Canadians just pay that minimum payment. We’re seeing a slow increase in consumer proposals, which generally happens when you can’t pay your debt.
With the end of the Canada Wage Subsidy, a lot of businesses no longer have a lifeline. Are you starting to see the effects of that on businesses specifically?
We’re certainly seeing more signs that are leading indicators of financial pressure on businesses — things like missed payments and late payments. We always have to remember that business owners are consumers. So often, what’s happening with consumers in Canada will find its way into businesses. They’re sometimes capitalized differently if they’re a medium- or large-sized business that isn’t reliant on the owner’s personal money, but there’s some influence and pressure there. And of course, as consumers come under pressure, they may spend less money in places like restaurants — although it seems like every restaurant I go to is jam-packed these days. I still don’t get it, but it’ll filter its way through.
As of 2021, Equifax gives free access to soft credit checks online. I’m sure your business generated quite a bit of money off charging for that kind of access — what changed?
The Quebec regulator required us to do that. And so, when we made that decision, we also thought it was probably the right thing to do elsewhere. There was a cost. We can charge for these things as well. But we decided that this was a responsible way to approach it.
Equifax just released a report that found something like 97 per cent of Canadians feel they’re vulnerable to fraud. Why is that number so high?
When I started my career, a lot of information was in filing cabinets. Now, there’s a lot of critical personal data, health data, and government data on digital platforms. And I think cybercriminals are way ahead of the sophistication of a lot of companies. We had our own breach in 2017, and we made the decision to invest about $1.6 billion U.S. to make sure we had the best security maturity risk rating in the world.
We did that because we obviously take protection of consumer and business data very, very seriously. And to be a great data company, you need to be a great technology company today. Then you have the pandemic, where a lot of in-person transactions couldn’t happen, so there was quite a massive acceleration in the use of digital data. The larger companies like the big banks and big telecoms can afford a cybersecurity team to protect their perimeter, and they can still get hacked.
But think about the smaller companies — the community hospital, the dental clinic. How are they going to protect themselves against bad actors in other countries? That activity is increasing for lots of different reasons, and I think we as a country are quite exposed – especially smaller entities that just don’t have sophisticated defences.
Equifax is supporting an Ontario bill to prevent forced debt from human trafficking from being recorded in a victim’s credit score. Why did you decide to do so?
Part of our mission is really to help Canadians live their financial best. That includes consumers that are survivors of human trafficking. We looked at the bill and said it was something we absolutely need to support. In addition to living through their trauma, survivors often find debt has been taken out in their names, like credit cards or student loans. Not only are they dealing with the recovery of their person, but their financial lives are in real disarray.
Once the bill gets passed into legislation, it prohibits credit bureaus like Equifax and TransUnion from actually using information on debt related to trafficking in any scoring models. It prevents the whole ecosystem of collectors from collecting these debts. It also excludes any financial institution or lender from considering them.
We’re really proud to support this bill. Trafficking is an increasing issue in Canada, and most of the victims and survivors are women. A big portion are Indigenous. It’s just really horrendous. Supporting this work is really about improving financial inclusion more broadly. — how do we improve access to credit for Canadians? How do we protect consumers? It sounds maybe a little odd and unrelated to our business, but if you think about the big picture, it fits in very well.
Would Equifax ever support a bill that had similar provisions for other cases where debt happens beyond an individual’s control, like losing their job or facing a disability?
If people are in trouble and in debt, we certainly support them, whether it’s through consumer proposals or bankruptcies. We are regulated, so we have to follow the rules. We can’t decide that a situation is really difficult and disappointing for a person, therefore we’ll remove their debts — we have to make sure we follow the rules and protect consumers, and their data, and the information that goes between lenders.
Hypothetically, would we support something like that? We’d have to look at it, and we’d have to certainly make sure we were being true to the guidance and the regulation that we have to live by to protect Canadians.
We don’t know what the economy is going to do this year. What are your predictions on how the coming year will affect the credit scores of Canadians?
We talk a lot about the pandemic and how more people had disposable income — that was not everyone. Some people lost their jobs. Some people lost their assets, some people lost their businesses. Some people had to find other ways to make money. There were some very hard-done-by parts of this economy, and we don’t talk about that as much.
Folks that had financial challenges continue to. I think about 50 per cent of Canadians live paycheque to paycheque. And then we have folks that probably fared reasonably well, but they may have a variable rate mortgage coming up for renewal — I’m actually in that category. Not in 2023, but in 2024. So that payment shock will hit a broad range of the economy. And I think that’s going to be more difficult for some than others.
That could be a $600 to $900 jump, per month, for the average Canadian family. That’s a big jump. People will pay their mortgage, so what else aren’t they paying? Maybe they start making minimum payments on their credit card. Maybe they’re not going on vacation. Maybe they’re not saving for their kid’s education — something will probably give there. I think we do see that situation looming, and I think that will be quite challenging for some parts of the consumer base.
This interview has been edited for length and clarity.
Brennan Doherty is a former staff reporter for Star Calgary and the Star’s 24-hour radio room in Toronto. He is now a freelance contributor.
JOIN THE CONVERSATION
does not endorse these opinions.