Let’s face it: Sometimes a credit score just isn’t enough information to determine how likely you are to repay a loan. But unfortunately, it can really hold you back from getting credit on decent terms. This is especially frustrating for people whose credit was tarnished by just one financial obstacle, like being unable to pay a medical bill.
Enter RevolutionCredit. This innovative startup is trying to shake up the way that banks assess credit risk, which is likely to benefit lenders and borrowers alike. Ready to learn more? Take a look at the details below.
What is RevolutionCredit?
RevolutionCredit, launched in 2012, is headed by founder and CEO Zaydoon Munir. Munir is a former executive at Experian, one of the three major credit bureaus in the United States. During his time there, Munir became intimately familiar with the credit scoring system currently in use – and its limitations.
According to Munir, RevolutionCredit’s mission is to identify consumers whose borrowing habits will outperform what their credit score predicts. I had the opportunity to meet with Munir, who said:
“The current credit scoring model is good at identifying people on the extreme ends of the borrowing spectrum – those who are very risky and those who are not risky at all. This [RevolutionCredit] helps to better differentiate between people who fall into the broad middle on that spectrum … close to 80 million consumers fall in this band.”
To do this, the company created a suite of financial education modules. Clients (usually banks and credit unions) purchase the modules and offer them to potential borrowers as a way to better judge their riskiness. According to Munir, borrowers who agree to complete the modules have the opportunity to show “intent, commitment and aptitude” for improving their financial expertise. Numerous studies run by RevolutionCredit and its partners show that these qualities correlate with lower credit risk.
All this means that RevolutionCredit is giving lenders the ability to bring forward-looking behavioral data into their assessment of an individual’s creditworthiness. This is likely a welcomed change for borrowers who’ve made money mistakes in the past, but have since overhauled their habits.
How RevolutionCredit could help you get a better rate on your next loan
If RevolutionCredit’s model appeals you, you’re probably wondering how it could actually work to help you qualify for a better rate on your next loan. Munir explained that each client uses his product differently — it’s up to the individual lender how the program is incorporated in the credit evaluation process.
But here’s a plausible scenario: A customer comes to a bank looking for a personal loan. Her credit score is 690 – on the low end of good by most financial institutions’ standards. She’ll qualify for an interest rate of, say, 11%, based on the bank’s usual lending model. However, if she agrees to undergo financial education through RevolutionCredit, she’ll be offered a lower rate. Perhaps if she scores well on the course’s test, her rate might drop even further.
Sounds great, right? Unfortunately, you probably can’t sign up with your lender just yet. Munir told me that, as of August 2014, he has seven paying clients. The revolution that RevolutionCredit is just getting off the ground, but keep an eye out for opportunities in the near future.
Remember, your credit score is still important
Although RevolutionCredit is aiming to bring a new dimension to how lenders rate an individual borrower’s level of risk, it’s important to remember that your credit score still matters – a lot. To keep yours in good shape, be sure to follow the Nerds’ top tips:
- Pay all your bills on time – no excuses!
- Keep the balances on all your credit cards below 30% of your available credit at all times.
- Start using credit responsibly as soon as you can.
- Don’t apply for credit you don’t need.
- Don’t apply for too many loans or credit cards in a short period of time.
- Review your credit report at least once per year – if you spot an error, take steps to have it corrected.
The bottom line: RevolutionCredit is trying to bring a more comprehensive approach to how lenders assess a borrower’s credit risk. Although things look promising, your credit score will still be a big factor in a bank’s lending decision. Take steps to make yours sparkle!
Credit approved image via Shutterstock