Allan Kaganov is enterprise sales executive at risk analytics and decisioning solutions provider Provenir
Many frustrated borrowers can’t get credit because they don’t have a credit history. They can’t build up a history because they can’t get credit. It’s the old cliché of the chicken and the egg – which comes first? For migrants, it’s even worse. They can be owners of property and paid-up holders of credit cards in their birth country but without a credit history in their adopted country, they can find themselves back at square one. For today’s globalised workforce, a credit score doesn’t travel well.
Over one million non-UK nationals from outside the EU work in the UK, according to the ONS. In 2015, the US Department of State issued over 450,000 temporary work visas to foreign nationals – representing 0.3 per cent of the US labour force. When each of these workers arrived in their new country they would have lacked a traceable credit history.
No doubt having the ability to borrow isn’t the first thing people think about when considering a significant relocation, but it can have a significant impact on their ability to acquire the things they want and need and to establish themselves in their new country. Without a credit history they may struggle to get approval to buy goods on credit, finance a car, and even get a mobile phone.
I moved from Australia to the US four years ago on a work visa and found to my dismay that I couldn’t get a mobile phone contract. I approached multiple providers but was told the same thing by all of them – I didn’t have enough of a credit history to be eligible for a long term contract.
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I and the many thousands like me represent a missed opportunity for lenders and extenders of credit. They are surely missing out on an untold volume of potential payments from these ‘under-banked’ foreign nationals.
Inflexible risk assessments are failing the would-be borrowers who have proof of good credit in their home nation. The processes just can’t adapt to take the full picture into account. This means that applicants enter the system as unknowns and this makes them potentially high-risk to lenders.
Traditional credit scoring resources used to determine the creditworthiness of an individual draw on particular data sources, and to feature in those an applicant has to have built up a credit history within the databases they access.
No doubt many of my fellow migrants will have had to take the route I was forced to take and built up a financial reputation slowly, over time. In the case of my unmet need for a mobile phone contract this meant establishing a satisfactory record of payment against a monthly mobile plan.
In time, this newly established credit reputation could give banks the confidence to extend to me a business, home or auto loan. But it will have taken them over two and a half years to do so.
Casting a wider net
A global credit score would suggest itself as a solution to the problem. Unfortunately, variation in local rules, data availability and data protection across national boundaries makes this difficult.
Instead, the practice of reliance on traditional credit scoring data within markets prevails and can prove to be comparatively limited. In domestic markets, many alternative and peer-to-peer lenders have realised the limitations of traditional data and explore the possibilities offered by casting a wider net.For lenders seeking to capitalise on the missed opportunity of foreign nationals, this can mean incorporating data from international bureaus and other sources.
In today’s digital world we all generate huge amounts of data all the time. This data is changing the way we all interact with one another; it’s widely available, updated in real-time and takes modern-day forms such as social media posts. New data sets could prove valuable to businesses – including those in financial services – dependent on up-to-date data to drive business decisions.
A digital footprint made up of many data points can paint a picture of an applicant’s ability to meet credit terms. As financial tides turn around the globe and the makeup of the workforce continues to diversify, the ability to adapt to new data could differentiate players in the credit and lending business.