You know those All State insurance commercials where they offer a good driving discount? Those usually frustrate me, because I feel like we should be getting rewarded more often for our good behavior. If they’re passing out discounts for good driving, why can’t we also get a reward for other things, like fiscal responsibility?
Some might argue… well, you do get discounts for fiscal responsibility. It’s called your credit score! Unfortunately, though, it isn’t that simple for many young people today. Investments in education are pricey, and while student loans are designed to be paid off with higher incomes in the long term, they often leave 20-somethings in heavy debt. Another detriment to young borrowers today is the fact that credit scores improve along with your credit history, and younger people inherently have a shorter record. Add in the fact that they have fewer years of post-graduate income, and you have the recipe for a deceptively low credit score … even for the most fiscally responsible of millennials.
After all, tomorrow’s wealthy doctor is today’s broke med student.
You see, back in 2009, Earnest founder Louis Beryl was one of those college students with a less than impressive credit score. Despite his Harvard education and habit of saving, he was getting denied for affordable loans. Beryl’s answer was to start his own company, Earnest, and try first-hand to change the way lenders evaluate your credit. Earnest’s goal is to lend to financially responsible people, no matter the credit score. They lend based on earning potential, not on earning past.
For many young adults this is a critical distinction.
The good news for borrowers, in addition to the fact that they are eligible to get a loan at all, is the fact that Earnest’s interest rates are below traditional banks and well below most credit cards.
Earnest uses sophisticated data software to evaluate each potential clients credit application, taking a number of factors into account before offering a loan. Because this data analysis so accurately prevents defaults, they are able to offer loans at rates as low as 4.25%, depending on the amount and length. (Loan amounts range from $2,000 – $30,000 and last for 1-3 years.)
Not a bad deal, right? So, is Earnest for you? Here’s what they evaluate….
- Your Educational History
- Your Professional History and Trajectory
- Your Overall Financial Responsibility
Merit Based Lending
To assess if you are eligible for a loan, Earnest asks for access to your LinkedIn profile, credit card debt, and saving/checking account balances. Why LinkedIn? Earnest uses it as a fast way to get all of your pertinent education and work history. Presumably, they can also use the data there to get a view of your career outlook as well. So if the networking and job searching benefits weren’t already enough incentive for you to keep that profile updated, maybe Earnest’s low interest rates can convince you to start Linking up.
*Added bonus: Earnest’s credit inquiry will add to your LinkedIn Profile Views!
Yes, that sounds like a lot of personal data to provide, but it is through the compilation of all these data points that Earnest evaluates how credit worthy you are. You can find a complete list of their guidelines for potential clients here.
Per the Wall Street Journal, Earnest is now lending in 19 states after raising $15 Million in capital earlier this year. And as of earlier this September, Earnest had lent $3 Million. Are you in line to borrow next? Did you wish this existed when you were starting out? Let us know what you think in the comments!