It’s hard to borrow money when you have a limited credit history that inaccurately deems you as a risk.

Earnest is a startup trying to change the conventional thinking about personal loans for whatever your needs may be — whether to move, buy a wedding ring, or pay off high-interest-rate student loans. Most banks and loan providers used credit information, like FICO scores and credit ratings, to judge a person’s loan worthiness.

Earnest does something different. It uses “merit-based” factors, such as potential earnings and job history, to provide loans for those whose credit history doesn’t qualify or is virtually nonexistent. Bank Innovation spoke to co-founder and CEO Louis Beryl about the company’s origins, the concept of merit-based loans, and future plans for the company.

The company came out of beta testing in March and received $15 million in funding in May from Andreessen Horowitz, Atlas Venture, Maveron, First Round Capital and others. Earnest started when Beryl first tried to apply for a loan for graduate school and was denied. He had gone to Harvard, had been steadily employed, and had made all his payments on time, but his credit score didn’t meet the necessary requirements.

“If I was going to rebuild the credit system and start from scratch, how would I do it?” Beryl said he asked himself. “What data would we want to look at? Earnest is similar to how banking was done before credit 50 years ago, when lenders got to know borrowers on a personal level. We got away from that over the past few decades.”

Earnest started to make loans. It has run both alpha and beta programs from Boston, and has seen notable growth, not through family and friends, but through “second-degree connections that had real needs for loans, including young professionals who were starting their careers,” Beryl said.

Beryl noted that Earnest was the top-rated personal lender on CreditKarma, a site that ranks lenders. The reviews for the San Francisco-based lender have been glowing.

There were two reasons people have come to Earnest: either they couldn’t get a loan elsewhere or they were being overcharged, which is a major issue for many young borrowers. “We at Earnest will set an interest rate at 5.5% or 6.5%,” Beryl said, “while big banks like 15% to 20% interest rates for a low-risk person. That doesn’t really make sense.”

VC ATTENTION

This incongruity is what caught the attention of some of those major venture capitalist firms, which invested in Earnest in the spring. Beryl said working with the likes of Andreessen Horowitz and First Round Capital has been invaluable.

“It’s been great working with these firms,” he said. “They might be big names, but they’re not big companies, so we get to work with partners directly. … I probably talk to more than one investor every week just to chat about advice. We feel really lucky that these guys are interested in us and willing to support out goals.”

Beryl continued, “We’re currently in nine states —  Massachusetts and Florida were first, then came New York, California, Texas, Pennsylvania, New Jersey, Connecticut and Utah. These states represent 50% of the country’s GDP and the most heavily populated states. We’re planning on adding a handful of others soon and keep expanding until we can cover the country. We’ll be rolling out to new states as fast as we can. A lot of it depends on factors like compliance and approval.”

Earnest uses a number of metrics to determine how worthy a borrower is, but not the typical metrics that larger banks use. Those Earnest metrics include “work history, income, where you went to school, spending and saving patterns, income growth, but bill repayment, too,” Beryl said. Beryl knew that these factors were important to determine risk for young people, and he equally knew, based on personal experiences, that the current credit system wasn’t taking these factors into account. While a recent Wall Street Journal profile mentioned that Earnest “uses LinkedIn” as well, Beryl clarified, explaining that users are allowed to connect their LinkedIn accounts to verify their education and employment history.

ATTRACTING THE YOUNGER DEMOGRAPHIC

Merit-based lending is one of the most interesting aspects of alternative lending, new services that are trying to attract a younger demographic. Earnest focuses on offering fair rates for people who are being overcharged by their loan providers based on their weak credit history, student loans, and other factors even though they’re fully employed and actually quite reliable. “All of these innovations and alternative lenders are very positive and can help the U.S. economy,” Beryl said. “Ultimately we’re talking about better access to credit at cheaper rates.”

What separates Earnest from competitors like Lending Club and Prosper is that Earnest doesn’t charge any fees and offers a flat APR for customers, depending on the length of their loans. “Companies like Lending Club and Prosper still have to try and make lenders happy. Our goal is to make our borrowers happy and we’ve been striving to do so. Overall, new innovation and advances is good for everyone and not relying on big banks and old lending technology is good.”

Earnest is currently content to stick to merit-based personal loans, but the company has plans to expand in the future to “not just unsecured small loans, but mortgages, student loans, car loans, etc. But it all depends on the demands of our clients — once they demand them, we’ll start expanding.” However, the May round of funding will be used on expanding the service geographically, not by asset class. Going back to basics, it seems, takes time.