Millions of Americans work hard, pay their bills, and save money each month. And yet, when they make an application for credit, they’re refused. Either they have little or no credit history or there’s some kind of mistake in their credit record. At least 5% of Americans have errors on reports that stop them from getting approved, a 2013 Federal Trade Commission study found.
It’s these customers that New York-based Happy Mango wants to find. One of a new breed of credit scorers, it hopes to open up loans to underserved people by looking beyond traditional data. That includes a deep analysis of checking account transactions, testimonials from friends and family, and pay stubs and tax returns.
“We look at the current financial condition of the borrower using cashflows, so we can assess the ability of the borrower to afford a payment,” says founder Kate Hao. “We want to know your income stability, like the consistency that you have demonstrated in putting money away.”
Traditional credit scoring collects data from hundreds of retailers, credit card companies, collections agencies and the like, creating a financial snapshot. Happy Mango–which links to a person’s bank account–looks to create a more long-term picture.
Hao, who worked for more than a decade at Morgan Stanley, came up with the idea for the startup after the financial crash. Trading in consumer-backed securities, she realized that banks sometimes have limited insight into the ultimate creditworthiness of customers (though, before the crash, banks would approve customers for mortgages whether they were credit-worthy or not.)
She launched Happy Mango in beta this February and currently works with a community bank in the Bronx and a credit union. In 2016, she plans to launch a new site for consumers and underwriting platform for lenders.
“We’re focusing on community based-organizations. In the future, incorporating up-to-date personal finance information and social information should be the market standard in credit assessment,” she says.
There’s certainly a big underserved market. This year, the Consumer Financial Protection Bureau said 26 million Americans are “credit invisible.” Blacks, Hispanics, and consumers in low-income neighborhoods are mostly likely to have limited or no credit history.
As well as helping lenders, Hao also hopes to demystify credit scoring for consumers. With the big three bureaus, it can sometimes be difficult to understand what went into your score. On Happy Mango, you can see the constituent parts: what percentage is due to your income, spending habits, savings or social characteristics (for example, what your friends and family say about your trustworthiness).
“We give all transparency to the consumer the same way we do to the lender. It’s not just a reference for the lender. It’s also a gauge for the individual that he can use that to improve his financial health,” Hao says.
With a bit of luck, services like Happy Mango will open up credit to more people, while making lending more accurate and transparent.