How much do you really know about your credit?
Access to low interest loans and credit cards is something most people take for granted. A respectable credit score enables you to borrow cheaply and in turn, further improves your credit record. But what happens if you have no credit history at all?
This is exactly what former venture capitalist Thomas Olszewski found when he moved from the US to the UK with a job offer already in the bag. His credit history didn’t travel across the Atlantic ocean with him, making getting a credit card or loan extremely difficult – if not impossible. After doing some digging, he realised this also affected between 6 to 8 million people in the UK. Those who lack enough historical credit data to be eligible for traditional borrowing options, end up facing excessive fees and more financial problems, rather than solving them.
So he set out to change all of that with Koyo in 2018. Based out of Huckletree Soho, Thomas and his team have big ambitions to disrupt a multi-billion pound market by offering fairer borrowing rights through the use of innovative technology. Earlier this month, they announced their $4.9m raise in equity and debt to make their vision a reality.
Fairer borrowing for all
Short or no credit history? You might face difficulties getting your hands on a loan or credit card. This isn’t dependent on whether you have a great job, assets tucked away (e.g savings), pay taxes on income or manage your expenditure responsibly. Traditional credit scoring is very old fashioned and relies on the principle that if you’ve borrowed money before and made timely payments, you will most likely do it again in the future, too. It also disproportionality rewards the primary bill payer in joint households.
Take Danish programmer and the creator of Ruby on Rails, David Heinemeier Hansson’s recent Twitter beef with Apple Card:
Not so at Koyo. Thomas explains, “We make lending decisions based on transactional bank data rather than just looking at the credit score. If a customer has a consistent income and manages their expenses in a responsible way, they may be eligible for a loan from us.”
So what does determine your credit score? Surprisingly, whilst your postcode doesn’t determine your actual credit score, if you haven’t built up much credit, living in an area where the average rating is fairly low could affect how likely you are to be accepted for financial products. This interactive map by checkmyfile shows how much credit scores vary depending on location. Let’s say you’re new to credit and your first address is South Kensington (a high income part of Central London), you’re more likely to have a higher credit score than someone based in Croydon (a lower income part of London).
“Because your credit score impacts your cost of credit, you’re making life for someone in a lower income part of London more difficult just by virtue of the fact they live there. This strikes me as unfair and having a negative impact on social mobility.” Social mobility, Thomas explains, is something he’s really passionate about, and it’s a key component of Koyo’s mission, vision and values.
On current business challenges
Right now, Thomas is focussing on three main things: recruiting, product and fundraising:
“I think it’s important to be relentless and have stamina when recruiting. We interview about 30 – 40 candidates per role and challenge our candidates with projects or technical tasks.
Developing a new way of scoring customers is a massive task and requires a lot of my time. There are also regulatory and compliance challenges.
Raising funds is a challenge for any business but for us it’s two fold. We have to raise cash to grow the business and we have to raise debt which we use to make loans to people.”
On the importance of community
“My priority is looking after the team, making sure they are happy and taken care of. Huckletree really adds a lot to that objective. We have a very seasoned team – they have families, husbands, wives etc – so it’s important they can be comfortable and fulfil whatever obligations they may have. Our location in the middle of Soho makes life better for everyone who works here,” Thomas says.
“Having access to other similar businesses, and members who can support our fast-growth within the community is incredible valuable. We’ve already benefited from a handful of rewarding introductions – and hope to have many more.”
Advice as a new founder
As a founder, the way you handle difficult situations can change your outcomes massively. Thomas says, “If you know that, then it’s a bit easier to manage the ups and downs of the business. I think people (investors and employees) were attracted to the company because they saw how passionate and emotional I was about it. It’s great to have passion but on a daily basis you want to step back and be objective.”
2020 is set to be a big year for Koyo as they officially launch their online lending platform, and look to raise an additional round of debt funding to continue the growth of their loan book leading into Series A. That’s not all – we hear on the grapevine that they’ve got a few new product ideas in the pipeline, too.
Over to you, Thomas, “While Koyo is based in London, we have global ambitions. Our aim is to expand our product offering in the UK and explore other markets where thin file customers are underserved”.
Ready to join the fairer borrowing revolution? Join the Koyo Loans waiting list now…