A healthy FICO credit score — above 640 — and steady paycheck are also key deciding factors
Lending Club banners hang on the facade of the New York Stock Exchange for its initial public offering, . Photo: Don Emmert/AFP/Getty Images
Each lending startup claims it has a unique strategy to drive down interest rates for borrowers and lower risks for investors. Upstart’s secret sauce is its academic algorithm, which Girouard said is inspired by Google’s own methods for hiring recent college graduates. “Based on what you studied, where you went to school and how you performed, we’ve built a statistical model that predicts whether you’ll continue to be employed over the term of the loan,” he said. “Going unemployed is one of the principal reasons why people default on loans.”
Girouard insisted the company’s approach doesn’t favor Ivy League graduates with degrees in high-earning fields, including engineering or medicine, while punishing less financially illustrious candidates, such as English majors from public universities. “It’s not at all an elitist thing,” he says, noting that while 95 percent of Upstart’s borrowers have college degrees, only 5 percent went to what he calls a “fancy” school.
“This is a whole demographic of people that are unfairly treated, in our view, by the credit system,” he said. “We’re using as much data as we can to give the best possible loans to every one of them.”
Charles Newport, the Upstart borrower, said the company’s academic emphasis appealed to him. He attended Indiana University’s Kelley School of Business and holds a well-paying job, but none of that seemed to help lower his credit risk in the eyes of traditional lenders. Continue reading