Most consumers understand the basic concept of a credit score: if you go to the bank for a home loan, they’ll check whether or not you’re good at paying off your credit card on time and then determine whether or not to give you a loan. What many consumers don’t know however is that they can find out their credit score and improve it to get better rates on financial services.
Sydney-based fintech startup Credit Savvy is working to help consumers better understand their credit and give them the tools to fix it and then leverage it when shopping around with financial institutions.
Dirk Hofman, managing director of Credit Savvy, said, “There’s a reasonably poor understanding of credit scores and credit reporting in the Australian market, so we’ve got a big job to do to help people understand that and get the cut through to the general public.”
Hofman believes this is particularly important given the changes to credit reporting laws which began coming into effect in 2014. Prior to this Australia had a negative reporting system, which meant consumer credit reports only contained basic information such as applications for credit and serious infringements.
Through the new comprehensive credit reporting system, which brings Australia into line with much of the world, a greater amount of data can be shared, including credit limits, account opening and close dates, and repayment history over 24 months. For those with a good score it shows banks that they are the perfect consumer, but for those without the extra data can shine a harsh light on bad behaviour.
“Helping consumers understand and navigate these changes and manage their credit reputation so they can actually prepare for that and take advantage of their credit score is what we’re all about,” Hofman said.
Created in partnership with multinational credit reporting agency Experian, Credit Savvy launched last year after a year in development, backed by mortgage lender Aussie Home Loans. It has since distributed over 600,000 free credit scores to over 100,000 members brought on by an extensive marketing campaign. These members receive ongoing reports monthly, importantly keeping them coming back to the platform.
Further to this, Credit Savvy gives members access to a Credit Knowledge Centre that helps them understand and improve their credit, and how to leverage their good score when applying for a loan.
“We have found that the feedback we’ve got from members is that is fairly poorly understood and people don’t understand that credit can stay on your file for five years, that certain credit with certain providers will be seen in a different light than others,” Hofman said.
“Members have given us feedback saying they now understand how this credit reporting actually operates and how it actually works, so now they can think twice about applying for too much credit or the wrong type of credit or not paying their bills on time, which is now something that can be tracked by the banks.”
With the service free for consumers, the company’s revenue model relies on its partnerships with over a dozen banks and other financial services providers, with Hofman explaining Credit Savvy acts as a “quality acquisition channel” for these providers. It operates a market comparison service allowing users to compare deals on products including personal loans, credit cards, and home loans to see how much they can save and where.
“We have a good insight into our member base, so from a provider’s point of view, that is of interest because they can reduce the waste of application for people that may not necessarily qualify for their products. We work closely with providers to fulfil their appetite for a particular type of consumer,” he said.
“I think we can be smarter than the average comparison website, that’s where part of the appeal is for providers to work with us and really understand how we can drive quality leads and quality consumers in our ability to help these members to their products.”
Credit Savvy has a number of referral programs in place, ranging from cost per click, cost for phone call, or cost per first application.
As it looks to the next 12 months, Hofman said the service is focused on maintaining an active dialogue with its existing members to make sure it continues to empower them to make better financial decisions, and growing this member base.
There is significant room for growth here: while the Australian credit reporting space is in development, US-based platform Credit Karma raised $175 million at a valuation of $3.5 billion last year. It is serving 40 million consumer customers. Credit Savvy faces competition however from established credit reporting agencies such as Veda, which gives consumers access to their credit score from $79/year.
Though there is potential for Credit Savvy move into the business-to-business space, for example providing businesses with credit reports on their debtors, Hofman said, “right now there’s plenty of work to do purely in the consumer space.”