The Customer Effect
How one startup aims to help ‘credit invisible’ foreign workers in the U.S.
- A San Francisco-based startup has developed a means to pull foreign credit bureau data into an alternative score to help lenders assess foreign borrowers.
- An analyst who has worked with major U.S. credit bureaus says an alternate score using foreign credit bureau data may still not be considered an equivalent score by U.S. lenders.
For millions of immigrants and temporary foreign residents in the U.S., establishing a financial identity here can be complicated and expensive. Since credit reports don’t cross borders, an immigrant with an exceptional credit score in his home country may arrive in the U.S. as ‘credit invisible’ -- a status that may render him ineligible for loans or long-term housing. “From getting a credit card, an auto loan, or getting a mortgage, all those use cases require a financial identity,“ said Misha Esipov, CEO of Nova Credit, a startup that’s developed a product called “Nova Credit Passport,” an alternative credit report that’s based on credit bureau data from other countries. The product launched last summer. Nova Credit is an alternative score to assess foreign residents’ creditworthiness based on their home country credit data. It can also be used for Americans returning to the country after years working abroad. The company obtains the data through agreements with major foreign credit bureaus, a process that can only be initiated with the customer’s consent, Esipov said. Though Nova Credit is initially focusing on India and Mexico, it’s entered into arrangements with credit bureaus in Europe, Canada, Australia and the Philippines. Its revenue model is based on fees to lenders who request the reports. “We can enable lenders and landlords to instantly pull consumer credit files from Mexico and India as easily as they pull a traditional U.S. credit file,” he said. Nova Credit’s system works through API integration with foreign credit bureaus. Its model uses machine learning to spit out a score that’s comparable to U.S. credit scores, noted Esipov. While not commenting specifically about Nova Credit's tool, David Shellenberger, FICO's senior director for scoring and analytics noted that FICO's own efforts to expand access to credit are centered around its alternative data-based FICO XD score in the U.S. and includes efforts to expand access to credit in other countries. TransUnion and Experian could not provide comments by deadline. One analyst with experience working with two major U.S. credit bureaus said that a score based on foreign credit bureau data may not be reliable enough for U.S. lenders. “The challenge is that is there enough information to generate a score that a U.S. lender would consider to be reliable enough to use when underwriting credit -- that’s the dilemma,” said John Ulzheimer, a Fair Credit Reporting Act consultant who has previously worked with Equifax and FICO. Even using data from the most sophisticated non-U.S. credit reporting systems may still not generate comparable scores, said Ulzheimer. “Even Canada is different -- there are considerably more lenders in the U.S. than there are in Canada, and we market credit much more aggressively than Canadian banks,” said Ulzheimer. “If you look at the prototypical Canadian credit report vs. the prototypical American credit report, the American one is going to have more information than a Canadian one would have.” He added that some emerging markets have limited credit reporting infrastructure that may not generate a comprehensive enough picture upon which U.S. lenders can rely. U.S. credit reports are based entirely on financial services data, while foreign reports may include utilities and housing information, he added. Despite these challenges, Esipov said the uptake from U.S. lenders has been positive so far, adding that Nova Credit has been working with U.S. banks, credit card issuers, and property management companies. “For them, this is an opportunity to solve a problem that a lot of their customers have been looking for a solution for for decades,” he said. “It’s ridiculous that even for our friendly neighbors to the north and south, we can’t help citizens from those countries or even Americans coming from those countries land on their feet -- we’ve finally created a global system that allows that to happen.”