Your credit score is one of the most important numbers in your financial life, but it has traditionally not crossed international borders. This is a major obstacle affecting the more than 1 million people who immigrate to the United States every year. For example, a credit card is a useful tool for day-to-day expenses, but qualifying for your first card can be particularly difficult.
Nearly half (49%) of immigrants said a U.S. credit card was hard to get, according to a recent OnePoll survey of 300 recent immigrants commissioned by Nova Credit, a fintech company dedicated to expanding immigrants’ access to credit. It was more than any other option. Opening a US bank account (40%) ranked as the second biggest challenge, well ahead of lining up housing, phone service and a car.
Obtaining financial services in the United States is a top priority for immigrants. About two-thirds (66%) sought to open a bank account before moving to the United States and 58% sought to open a credit card. These priorities were ahead of finding housing (57%) and obtaining telephone service (56%). They were well ahead of buying a car (38%), financing a car (35%) and getting another type of loan (31%).
Unfortunately, without a US-based credit score, it is very difficult to qualify for credit cards and other loans in the United States.
How some cope
Kristy Kim told me she felt “like a gangster” paying for a car with cash after being turned down for financing despite having a prestigious college degree and a lucrative job in investment banking. Ms. Kim, an immigrant from South Korea, used her personal experience as motivation to co-found TomoCredit. She is currently the general manager. The company offers an underwriting credit card based on a detailed cash flow analysis rather than a credit score.
Petal is another startup that practices cash flow underwriting and focuses on immigrants, young adults, and other groups who have fallen through the cracks of the traditional financial system.
Nova Credit’s chief data and analytics officer, Sarah Davies, estimates that up to 80 million people living in the United States fit this description. They are either completely invisible when it comes to credit or only have a small amount of credit information on their records (also known as a thin credit file).
The Nova Credit approach
While TomoCredit and Petal base their lending decisions on applicants’ cash flow, Nova Credit translates foreign credit rating information into a format that its US partners use to approve or deny credit applications. Davies says Nova Credit can convert data from about half of the world’s credit bureaus to US format. Examples include Australia, Austria, Brazil, Canada, Dominican Republic, Germany, India, Kenya, Mexico, Nigeria, Philippines, South Korea, Spain, Switzerland and the UK.
Nova Credit’s lending partners include American Express for credit cards, Westlake Financial for auto loans, and Verizon for mobile phones. By helping immigrants qualify for these products based on the credit history they established before arriving in the United States, Nova Credit can also indirectly open up other financial opportunities.
For example, responsible use of a US credit card or auto loan can further improve an immigrant’s credit score and make them a better candidate for other financial products, including a mortgage. Alternative credit building tools such as Experian Go, perch and eCredable Elevator are also good ways for people, especially those with limited credit histories, to build and improve their credit scores.
The bottom line
Traditionally, it takes credit to get credit. It’s similar to getting a job in that potential employers generally want to see directly related work experience. But getting that first opportunity can be particularly difficult. In the world of credit, that’s starting to change, thanks to recent innovations from Nova Credit, Experian and others.
Have a question about credit cards? Email me at firstname.lastname@example.org and I’d be happy to help.