Increasing credit inclusivity with Nova Credit

Historically, financial institutions have relied on traditional credit bureau data for lending and credit decisions as the key measure for evaluating risk in extending credit to a customer. This data has limitations, and some banks and fintech companies are starting to look to new, alternative data sources when considering approving an applicant.

In our Credit Data series, we’re interviewing our credit data partners that we’ve integrated within our credit decisioning workflows. These data integrations give our clients a better picture of their applicants and help them offer credit to a broader audience while still managing their risk effectively.

For the first blog in our series, we’re talking to Chris Hansen, Head of Channels & Alliances at Nova Credit. Chris focuses on building partnerships and developing go-to-market strategy across the fintech ecosystem. Prior to Nova Credit, he was Founder and Chief Revenue Officer of Argyle, an employment data platform. Chris played a key role in launching Alloy and Nova Credit's new partnership.

Can you tell us about Nova Credit’s mission and why you think providing alternative data for credit decisioning is important?

Our mission is to power a fair and inclusive financial system for the world—connecting consumers and lenders with trusted data and analytics where the traditional credit system falls short.

While traditional credit risk models predict consumer behavior today, they have not evolved much since their inception over three decades ago. As a result, the shortcomings of the existing system systematically lock out over 50 million people in the United States from accessing credit solely because they may not use credit “in the right way” (often enough, enough credit accounts, within specific geographies).

In today’s world, consumers produce an abundance of rich financial data that is very indicative of risk. Introducing alternative data helps fill these gaps where the traditional system falls short. By providing lenders with a scalable solution to assess a more complete picture of a borrower’s risk profile, Nova Credit enables lenders to extend more credit access without increasing risk while providing consumers with more equitable access to financial products and services.

What kind of alternative data does Nova Credit provide for credit decisioning?

Nova Credit currently provides two types of consumer-permissioned data to help lenders evaluate consumer creditworthiness—international credit data and cash flow data. In both cases, the data enables lenders to serve portions of the population who have been excluded by traditional credit systems.

Credit Passport® enables lenders to access international credit data for underwriting through our global network of credit bureau partners, spanning more than 20 countries and accounting for over 1 billion consumer credit profiles. With consumer-permissioning, lenders are able to access this data in a familiar format, empowering them to seamlessly underwrite the roughly 2 million immigrants that arrive in the US each year. While this data may be considered “alternative” in the sense that it is not commonly available today, it is actually traditional data that is merely native to different geographies. The common concept of tradelines, inquiries and payment history are largely universal.

Cash Atlas™ enables lenders to utilize cash flow data for underwriting and verification of income, assets and more. This data can be used across the credit spectrum, and notably, to include the over 50 million credit-excluded consumers who have thin files or no credit files today. With consumer-permissioned access to bank transaction data, lenders can leverage over 1,000 decisionable attributes to improve risk assessments, better understand willingness and ability to pay and ultimately increase originations.

What do you see as the best use for that data in a credit decisioning workflow?

Both of our solutions can be used as primary decision mechanisms standalone or within waterfall logic where domestic credit is limited. Our goal is to allow the consumer to demonstrate their creditworthiness with the most relevant data for their situation.

International credit data is commonly used when consumers self-identify as having international data, don't yet have a Social Security number or when domestic credit pulls fall short.

Cash flow data is most powerful in conjunction with credit data; however, it is also predictive in isolation for assessing risk and making a decision with confidence.

The combination of credit and cash flow data creates a comprehensive and robust framework for lenders. Global credit and banking data combined enable a balanced view of a consumer's finances while also creating transparency into the sources of a decision's data foundation.

How do you see that data benefitting both consumers and financial institutions?

Consumers benefit from expanded access to financial products and services from which they would otherwise be excluded. They are also able to explicitly control the way their data is accessed and shared to better understand its role throughout the process by providing explicit permission to use this data.

In turn, this allows lenders to market their offerings to a net-new population, better underwrite risk and build trust with applicants securely and thoughtfully.

How are clients using this data?

We work with partners in several different industry verticals, including credit cards, student loans, personal loans, auto loans, tenant screening and telecommunications. We enable companies like American Express to originate credit cards for newcomers, SoFi to reduce manual income verifications in their personal loans portfolio and Verizon to finance phone plans and devices for newcomers with more confidence.

From a regulatory or compliance perspective, are there any best practices or guidelines that Nova Credit typically issues to clients?

We encourage clients to be cautious in their decisioning and think about the experience through the consumer’s eyes. Whether we are figuring out identity verification solutions that work for newcomers who might not yet have Social Security numbers, or we’re providing adverse action statements for all of our cash flow attributes—Nova Credit prides itself on being a Credit Reporting Agency (CRA) that helps lenders balance regulatory requirements with consumer realities. We create lasting solutions that drive client value and confidence by balancing both of these needs.

What are you most excited about with Alloy and Nova Credit’s partnership?

This partnership makes it easier for clients to access our credit risk data and analytics within Alloy’s credit decisioning platform. In the short term, this will make it easier and faster to design and test credit decision policies in a configurable workflow. On a broader spectrum, we are proud to usher in a new era of open finance as it pertains to global identity and trust—combining Alloy’s single-API platform and Nova Credit’s global credit infrastructure to better serve millions of consumers in a more inclusive and secure way.