Nova Credit Advocates for Real-Time Credit Bureau Transformation

The traditional model of credit scoring is facing scrutiny as Nova Credit advocates for a shift towards real-time credit assessment. Co-founder and CEO Misha Esipov emphasizes that existing credit bureaus focus narrowly on debt and repayment history, leaving many consumers without adequate access to credit. According to Esipov, “There are still a hundred million Americans who struggle to get basic access to credit.” He argues that enhancing data quality is essential for addressing this issue responsibly.

Esipov notes that the challenge lies not only in the outdated nature of legacy credit scores but also in their static approach. Traditional credit bureaus report on liabilities and missed payments but fail to consider critical aspects of an individual’s financial life, such as income, spending habits, savings, and cash flow. “Just looking at someone’s liabilities is a fraction of their financial health,” he stated, highlighting the need for a more comprehensive picture.

Rethinking Creditworthiness Through Cash Flow

As an alternative, cash flow underwriting has emerged as a significant solution. This method enables lenders to assess a borrower’s ability to pay by analyzing bank transaction data instead of relying solely on credit files. Esipov views this as a foundational shift in defining creditworthiness. He asserts, “Modeling income and understanding ability to pay is foundational.” By incorporating cash flow data, lenders can gain real-time insights into a consumer’s financial stability.

This approach is particularly relevant in today’s gig economy, where individuals often juggle multiple income streams. Visibility into bank deposits allows lenders to evaluate the resilience of applicants, even when their incomes fluctuate. Esipov believes this level of insight is crucial in making informed lending decisions.

Building a Standardized Framework

Despite the growing momentum behind cash flow underwriting, Esipov points out that the current landscape remains fragmented. Different banks and fintech companies utilize varying models and data interpretations. “What’s missing is a standard, a trusted, interoperable framework for using real-time data across the industry,” he remarked.

At Nova Credit’s recent Cash Flow Underwriting Summit, the shift from exploration to execution was evident, with participation from 38 of the top 40 consumer lenders and banks. Esipov noted that significant players like Chase and PayPal are now investing in cash flow underwriting as a core capability, indicating a move towards more standardized practices in the industry.

Esipov does not predict an immediate replacement of traditional credit bureaus by cash flow underwriting. Instead, he envisions a future where risk officers have the option to leverage both bureau data and bank data. He states, “When given that choice, any risk officer would choose more data,” highlighting the potential benefits of integrating diverse data sources into the credit assessment process.

To achieve this future, a real-time credit bureau is essential—one that establishes standards, compliance, and analytics for bank data similar to how legacy bureaus have operated with debt information. “We’re working with industry leaders to set the standard for how to take this very messy data and put it into a format that the industry knows and trusts,” Esipov explained.

The credit industry stands at a pivotal moment. While there is consensus on the shortcomings of the traditional system, Esipov advocates for a new type of bureau built on real-time, consumer-permissioned data that accurately reflects individuals’ ability to pay. “This is not a game of basis points of improvement,” he said. “This is a step change — hundreds of basis points in approval rates.”

Ultimately, Esipov envisions a future where better data, unified standards, and a collaborative infrastructure create a trustworthy system capable of supporting a rapidly evolving economy. The blueprint for this real-time credit bureau is unfolding, promising to enhance financial access for millions.