Millions of immigrants enter the United States lacking something important for success: a documented financial history or credit score. Unable to prove their reliability to lenders, they find it harder to rent an apartment, lease a car, or get their first credit card. A lack of credit score hobbles immigrants as they try to get a footing in American life.
It’s not only poor immigrants who experience inconvenience and hardship, says Misha Esipov, cofounder of an alternative credit scoring startup called Nova Credit. Even people with decent scores in their home countries become “credit invisibles” once they arrive here–consumers who can’t prove their viability to the mainstream U.S. financial system.
Traditionally, the credit reporting industry has operated on a nation-by-nation basis. There have been no international standards by which bureaus and their financial clients have shared data about customers. Each time people have emigrated, they’ve effectively gone back to square one–that is, to having little or no credit score in their adopted countries.
Based in San Francisco, Nova Credit is trying to fill the gap. For the last two years, it’s pursuing deals with credit bureaus in 15 countries to create a “credit passport”–a way of porting financial history data across borders. Its business-to-business dashboard makes immigrants visible once more, translating data stored abroad into a form that can be consumed by banks, telephone companies, and landlords here.
“The databases are structured differently around the world, they have different standards. But, at the end of the day, they’re capturing substantially the same thing. It’s a positive or negative about a consumers’ credit information,” Esipov says.
About 26 million Americans have no credit histories with one of the big three credit bureaus (Equifax, Experian, and TransUnion), according to 2016 figures from the Consumer Financial Protection Bureau. A further 19 million consumers are “thin file” or “stale file,” meaning their records are either incomplete or too old for the purposes of working up a FICO, VantageScore, or another credit score. Blacks, Hispanics, and people with low incomes make up the largest proportions of these groups. Esipov says 10 million immigrants are credit-invisible because they’ve only recently arrived in this country and haven’t yet built histories of paying cell-phone bills and electric charges. Much of this second group may, in fact, be quite creditworthy, if someone can prove it, he argues.
Esipov says the credit bureaus are failing to serve to this segment because they’ve yet to invest in unconventional data, including data from foreign agencies. These days, many of these foreign groups use modern practices akin to U.S. standards, he says; there’s no need to distrust the quality of their information.
“It’s not that banks are bad, or that credit bureaus are bad [in not having this data]. But there’s a business, regulatory, and information gap at the moment,” he says in an interview. “This is a great way [for lenders] to have an impact and promote financial access to a growing and attractive segment of the market.”
Esipov says foreign bureaus, which are a mixture of public and private entities, are motivated to work with Nova for different reasons–softer and harder. Some simply want to help fellow nationals make it in our country. Others see an opportunity to generate extra funds from their existing data (Nova pays for cooperation).
The founders, all Stanford graduates, have personal reasons for setting up the company. Esipov’s family came to the U.S. from Russia in 1990. His mother was denied a car loan for years for lack of a credit score, he says. Co-founder and COO Nicky Goulimis came here from Britain to take an MBA at Stanford. She was denied a credit card despite a solid history of paying off student loans and credit card bills.
This summer, Nova started working with Mpower Financing, a lender serving low-income domestic students, students here under the Deferred Action for Childhood Arrivals (DACA) program, and international students who don’t fit traditional credit criteria. Nova’s data, covering countries like Mexico, India, Canada, the U.K., and Australia, covers 30% of Mpower’s customer base, it says.
Nova graduated from the Y Combinator incubator last year and is currently enrolled with the Financial Solutions Lab, an incubator at the Center for Financial Services Innovation that invests in startups promoting financial inclusion. The latter comes with an investment of $250,000. It makes money by charging lenders to access its reports, just like a traditional credit reporting agency (hopefully it will do a better job of protecting personal data from leaking onto the internet).
Nova is one of several startups trying to increase financial access by harvesting unconventional data, be it phone records, social media, behavioral quizzes, or foreign bureau files. Esipov says the big credit bureaus are missing a trick by not mining more information outside conventional financial transactions. “Some alternative data provided by consumers has a strong signal for underwriting capability,” he says. “Only a subset of that information is being systematically captured by the traditional agencies and they’re falling behind the data usage and standards of the next wave of underwriting practices.”
Correction: This article has been updated to reflect the fact that Nova is pursuing deals in 15 countries, but has not yet signed them, and to update the list of countries from which Nova has data.