...seems we're both overstating our respective points then, when I claim it will definitely be a problem and you claim it's never a problem. Apparently you just had one piece of experience and I had another.
When I moved from the U.K. to Austria to start my "startup", I had to wait several years before I could apply for a credit card from my Austrian bank because I couldn't show them a paycheck from a current employer. (I'm an Austrian national).
When I later moved from Austria to Germany, one bank even rejected me for a basic bank account with no credit facility at all, when the only piece of information that the German consumer credit rating agency (Schufa) had about me was the date when I first appeared on their radar, implying I was a recent "immigrant", and the fact that I ticked the "self-employed" box on my application form. I managed to convince another bank to give me a bank account, though.
In Munich, being an overheated housing market like most of Germany, prospective landlords wanted to see a recent paycheck, and I'd be in a world of pain trying to explain to them that I couldn't show them one but still wasn't really a financial risk for them. Luckily I came across a landlord who, himself, was a small business owner, who rented to me.
Admittedly: Moving around a lot also played a role in my personal experience with consumer credit rating.
I think it illustrates my main point rather well: To a status seeker it is extremely off-putting to think that, when they open a bank account or apply for a mobile phone plan, they might suddenly find themselves in a difficult conversation, even when they're not objectively in financial trouble.
And, I think it even goes so far that people sometimes seek out pre-seed investments and incubator memberships and things like that, even when they don't need the money, because it serves a psychological need for status and validation.
Austria is really bad AFAIK. Trying to push anything through Austrian bureaucracy is an exercise in futility; the country seems to be totally sclerotic, at least on the governmental level.
Former Soviet Bloc countries are more positive towards small business owners.
If you're in the early-early stages where you're just funding the startup yourself, you may not want to pay yourself a salary for various reasons (e.g. offsetting your losses against future earnings for tax reasons).
If you do cut yourself a paycheck, the model will probably assume that's all the money you make and won't understand the fact that you're also the owner of some business. So it might backfire, if you try to game the model by paying yourself a very small amount just so you get to be in the employed-category rather than the self-employed category.
...maybe I'm just being stupid for ticking the "self-employed" box rather than try to make it look on paper like there's basically no difference between my situation and that of an employee in a bigcorp. I just don't know.
Statistically, I probably am a risk.
But I've never had an actual credit event, am not planning on having one in the future, and any time I want money, I can just pick up the phone to a freelancing agency, and by next week, I'll be making more money than most of my highschool friends. So in that sense, I'm not a credit risk. There's just no way to explain that to a risk model.
> But I've never had an actual credit event, am not planning on having one in the future, and any time I want money, I can just pick up the phone to a freelancing agency, and by next week, I'll be making more money than most of my highschool friends. So in that sense, I'm not a credit risk. There's just no way to explain that to a risk model.
You know the issue, the risk modeling will never take into account a subjective experience such as "I can pick up the phone and make bank", there's no way to price that in, it's a very edge case that requires some human intervention to understand it.
If you did that consistently over a couple of years and had tax returns to prove you can do it reliably I'm sure some credit models I worked with would use that as a strong signal, right now you are definitely a risk (and you are aware of it), what exactly do you expect risk models to do in your case?
In that, I believe we should leave some room for human intervention in some automated systems; credit models/risk assessment models would be one of those, you should be able to meet a real person, show them how you are not as risky as their modeling says you are and be able to present/defend your case to invalidate their automated assessment.
> what exactly do you expect risk models to do in your case?
I'm not complaining, just responding to others on this thread to whom the connection between consumer credit rating and being a startup founder wasn't so obvious.
> [...] we should leave some room for human intervention [...]
I couldn't agree more, and this is not something we can take for granted. I see a dystopia lurking around the corner where only HNW individuals get the privilege of attention from human bankers and automated decisions can effectively block the path towards ever getting there. But that's a topic all of its own.
When I moved from the U.K. to Austria to start my "startup", I had to wait several years before I could apply for a credit card from my Austrian bank because I couldn't show them a paycheck from a current employer. (I'm an Austrian national).
When I later moved from Austria to Germany, one bank even rejected me for a basic bank account with no credit facility at all, when the only piece of information that the German consumer credit rating agency (Schufa) had about me was the date when I first appeared on their radar, implying I was a recent "immigrant", and the fact that I ticked the "self-employed" box on my application form. I managed to convince another bank to give me a bank account, though.
In Munich, being an overheated housing market like most of Germany, prospective landlords wanted to see a recent paycheck, and I'd be in a world of pain trying to explain to them that I couldn't show them one but still wasn't really a financial risk for them. Luckily I came across a landlord who, himself, was a small business owner, who rented to me.
Admittedly: Moving around a lot also played a role in my personal experience with consumer credit rating.
I think it illustrates my main point rather well: To a status seeker it is extremely off-putting to think that, when they open a bank account or apply for a mobile phone plan, they might suddenly find themselves in a difficult conversation, even when they're not objectively in financial trouble.
And, I think it even goes so far that people sometimes seek out pre-seed investments and incubator memberships and things like that, even when they don't need the money, because it serves a psychological need for status and validation.