College graduates often enter the world unaware how much impact one score will have on their entire lives. Credit scores determine much of a person’s financial life, including: the ability to get a credit card, interest rates when refinancing existing debt and eligibility for a loan or mortgage.
Unfortunately, throngs of college graduates who need a loan or to refinance debt discover their four years of education did little to prepare them to ace a credit check. Seeing a need in the financial landscape, some startups are seeking to help these young professionals by offering alternate ways to evaluate whether or not a young adult can be a trusted borrower. Here are two to check out:
Upstart
“You are more than your credit score,” Upstart proclaims on the company homepage. A startup and recent entrant into the peer-to-peer lending space, Upstart aims to help recent college grads who can’t get a loan or at least one with a fair rate. While Upstart claims applicants are more than their credit score, they prefer those with a FICO score of 640 or higher.
Requirements: The company puts an emphasis on approving potential borrowers with fair to excellent credit. However, applicants — who must be a U.S. citizen and 18 years of age or older — with minimal, or an insufficient credit history, can be accepted. Upstart evaluates candidates based on degree program, school, graduation year, years in the work force, job title, company name and income. In fact, borrowers must have graduated (or be within six months of gradation) from a four-year accredited institution, be accepted to a partner boot camp or have a full-time job or a job offer starting within six months.
Interest rates: Upstart does a soft pull of an applicant’s credit report to determine interest rates. Annual percentage rates run from 6.68 percent to 24.58 percent, so loans on the high end are not significantly cheaper than many credit card interest rates. However, they do offer fixed monthly payments and a set deadline for when the debt will be paid off. Credit card debt is significantly more difficult to manage for many consumers who don’t realize a bulk of their payments go toward interest instead of paying down the principal debt.
Fees: Borrowers will pay an origination fee, but can prepay a loan in full or in part without a penalty. A one-time origination fee will vary based on loan grade and the interest rate. For example, a AAA grade loan with a 6.29 percent interest rate will levy a 1 percent origination fee. A D grade loan with an 18 percent interest will cost a borrower a 6 percent origination fee.
Loan availability: Upstart is available in all 50 states.
Earnest
Earnest, a personal loan startup founded in 2013, bucks some of the traditional forms of measuring the riskiness of potential borrowers. Instead of putting so much emphasis on credit history and scores, the company seeks to help recent graduates and young professionals by evaluating past achievements and future potential. The company describes itself as a “merit-based” lender.
Requirements: In order to use noncredit score metrics, Earnest asks loan applicants, who are required to be 18 or older, to link their LinkedIn profiles to their Earnest application. The company states on the website this action will help potential borrowers complete their application more efficiently, but the unspoken truth is this action gives the company access to a wealth of data on the applicant.
Next, Earnest analyzes education, employment — including duration of a career with a company — role, salary, promotions and potential trajectory.
In order to evaluate finances beyond a credit score — which is not an indication of income or wealth — Earnest also asks applicants to link their financial accounts to verify income, savings and investment planning. However, they still check an applicant’s credit history and score.
Interest rates: Earnest offers loans from $2,000 to $30,000 with a fixed APR of 4.25 percent to 9.25 percent. Monthly payments scale in relation to the amount borrowed. A three-year loan of $10,000 will have an estimated $300 to $319 monthly payment. The same loan for a year will have a monthly payment from $853 to $872.
Interest rates are not confirmed until after applicants apply for a loan. Applicants can decline a loan if the interest rate is too high or they decide against pursuing a personal loan. Declining a loan will not incur a fee. Note: Earnest does a hard inquiry on a credit report to determine interest rates. A hard inquiry will be noted on a credit report and result in a small decrease in credit score.
Fees: Borrowers will not be charged an application fee, and more importantly, there is no charge for paying down a loan early.
Loan availability: Earnest isn’t available across the United States. Loans are currently available in: California, Colorado, Connecticut, Florida, Georgia, Illinois, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Tennessee, Texas, Utah, Wisconsin and the District of Columbia.
Make Sure to Shop Around
Savvy shoppers comparison shop when buying clothes, groceries and appliances so they certainly should do the same for financial products. Fortunately, many online personal loan providers, such as Upstart, SoFi, Lending Club and Prosper, provide the opportunity to see interest rates by doing a soft pull of a credit report. This will not impact a credit score or be reflected in a credit report. However, a hard inquiry of a credit report should not discourage applying to a lender like Earnest.
Borrowers should simply be aware whether a company does a hard inquiry or soft pull before applying to several lenders and putting several inquires on their credit reports. The ultimate goal is to find the lowest interest rates and the most efficient way to pay down debt. Don’t assume the first company offers the best deal.
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Loan Options for Recent Grads With Low Credit Scores originally appeared on usnews.com
