Living and working in the US has been a goal, an achievement, and a dream for many, especially entrepreneurs. But, setting up shop in the largest startup ecosystem has its own set of challenges, and one of them is credit history.
All founders need a good credit score to buy anything in the US. However, retaining your current home country’s credit history while moving your base to a different one is highly difficult as these immigrant-entrepreneurs realised.
Misha Esipov, Nicky Goulimis, and Loek Janssen, all had firsthand experiences with the challenges faced by newcomers in the US, who often lose their credit history upon arrival.
To solve this problem, the trio founded Nova Credit in 2016, which has a global credit scoring and reporting format called the Credit Passport.
Similar to a US credit report, it contains a FICO-equivalent score, tradelines, and inquiry history, allowing anyone who has recently arrived in the US to demonstrate their creditworthiness to lenders.
Nova Credit works with credit card companies, lenders, and other credit product providers. At present, American Express is its premier partner in the payments industry. The startup also allows newcomers to apply for a student loan via MPower, an auto loan via LendBuzz, and rent an apartment through Yardi, Intellirent or First Advantage.
The founders claim that these companies can use Nova Credit’s solution to seamlessly underwrite qualifying newcomers – without a US credit score.
Solving a personal problem
All three founders of Nova Credit have had to face several financial challenges while immigrating to the US. Misha’s family from Russia moved to the US in 1990, and his mother was denied a car loan for years for lack of a credit score.
On the other hand, when Nicky (from Britain) and Loek (from the Netherlands) immigrated to the US to study at Stanford, they were denied credit cards despite their history of paying off student loans and credit card bills.
"Many newcomers in the US, both immigrants as well as some returning Americans, are rendered ‘credit invisible’ upon arrival because US underwriters can’t access international credit data. As a result, even if they had a good credit rating in their home countries, they struggle with basic tasks such as getting an apartment lease, a cell phone plan, credit card, or a student loan," says Misha.
Even if you have an extensive credit history at your prior home country, you might need to take on the onerous task of building a US credit history from scratch – which can take as long as five years.
"Our first client was MPower, a company that provides student loans for international students without cosigners or credit history, in 2017. They partnered with Nova Credit because of our shared mission," adds Misha.
The startup is entirely VC-backed as the founders were students at Stanford when they began their entrepreneurial journey.
It was incubated by Y Combinator, Pear VC, and the Financial Solutions Lab. Nova Credit also raised a funding of $20 million in its Series A round from General Catalyst, Index Ventures, First Round Capital, NYCA, and Core Innovation Capital.
Earlier this week, it raised $50 million in equity financing, led by Kleiner Perkins, joined with major participation from Canapi Ventures and existing investors Index Ventures, General Catalyst, and Nyca Partners. Sound Ventures, a venture capital fund founded by Ashton Kutcher and Guy Oseary, also participated in this round, with support from baseball legend Alex Rodriguez, and U2 guitarist the Edge.
The new round of financing will be used to significantly expand the startup's global reach and mission to support newcomers from around the world.
Helping immigrants access financial services
According to Pew Research, immigrants drive 55 percent of US population growth, a figure that is projected to grow to 80 percent by 2050. Nova Credit is building the future of global finances by enabling these newcomers to share international credit history.
The San Francisco-based startup helps immigrants apply for financial services using their international credit history from countries including India, Australia, Brazil, Canada, Mexico, Nigeria, South Korea, and the UK.
It translates international credit data into a US equivalent score and reports it in a format familiar to American underwriters, who then use it to evaluate applications for credit products.
For most countries, Nova Credit aligns the country-of-origin credit score to US credit risk levels by matching the default rates. For example, a score of 700 in the originating country that represents a default rate of three percent might equate to a score of 710 at the same default rate in the US.
Banks are naturally Nova Credit’s primary customers, who use the startup’s data to underwrite immigrants for credit cards, loans, mortgages and more. However, companies offering housing, auto leasing, insurances, etc., also work with it.
At present, it is piloting a partnership with a major US cell phone company in selected cities across the country to provide telecom services to newcomers.
It is important to note that every stakeholder in the system wins from Nova Credit’s model. Domestic businesses can now access a new, rapidly-growing, and highly attractive consumer segment. They can also screen international applicants fairly and approve them for their products and services.
"Foreign credit bureaus acquire an additional revenue source and can support their own citizens during the immigration process. But most importantly, millions of immigrants can now acquire the products they need and deserve. They can even get all relevant services before they arrive in their new home country. This gives comfort and security during an incredibly challenging period in their lives," says Misha.
Immigrants can import their credit report through Nova Credit, which can then pre-qualify them for its services, also capturing referral fees from its business partners.
According to MPower Financing and MigrationPolicy.org, an average of 1,50,000 students from India go to the US every year.
And for this vast base of Indian customers, Nova Credit has partnered with CRIF Highmark and CIBIL to locate and translate credit files into US-equivalent scores.
What lies ahead
Misha says, "We generate revenue through buying credit reports from leading overseas credit bureaus and selling these to businesses in the US and Canada.”
While the founder does not disclose exact revenue details, he claims that Nova Credit is growing at a 10X rate since 2017. The startup competes with the likes of credit.com, Credit Sesame, and Credit Karma.
Now, Nova Credit plans to serve more newcomers by adding new countries to its platform. It also wants to invest in alternative data to strengthen its analytics toolkit.
The founder says that the startup is planning to incorporate new areas to cover the full spectrum of a newcomer’s needs. Nova Credit’s also wants to expand its newcomer content site as a “one-stop-shop” for all questions related to immigration.
(Edited by Saheli Sen Gupta)