Last fall, at a conference in New York City, Zaydoon Munir stood in front of an audience of potential investors and made a pretty big claim. "We have cracked the code on how to make financial education work," he said.
Munir didn't mean that his start-up, called RevolutionCredit, has found a way to make the average American more knowledgeable about financial basics like budgeting, inflation, and interest rates. Instead, his company's online courses accomplish something else: They help lenders identify conscientious borrowers, and give customers a chance to prove they're savvier than their credit scores might suggest.
"One can think of RevolutionCredit as a way to add bonus points to your credit score," Munir says.
Credit-rating agencies calculate scores based on how someone has already interacted with the financial system. Scores typically range from 300 to 800, and a high number signals to lenders that the borrower can be counted on to pay her bills on time. Personal credit scores are a major factor in whether lenders decide to give someone a loan, credit card, or other credit product — and at what interest rate.
The system doesn't work well for young people, recent immigrants, and low-income individuals who don't have lots of experience with bank loans. About 64 million people in the U.S. have either a very limited credit history or no history at all, according to the National Consumer Law Center. It can be difficult for lenders to differentiate among people with middling scores, and knowing someone's past history doesn't tell a lender whether that person is committed to good financial behavior in the future.