Author Topic: what can p2p platforms really do to a credit score?  (Read 10360 times)

dontvote

  • Full Member
  • ***
  • Posts: 226
    • View Profile
    • Email
what can p2p platforms really do to a credit score?
« on: March 13, 2013, 08:37:55 PM »
what is the real affect of a defaulted payment on a person's credit score?

I'm not clear what a platform can really do to a score - in theory it would be like defaulting on a credit card, but what does it mean to default on a credit on a credit card? The card company must sue and recover for it to be a record, right? otherwise it's just a delinquency which is a small hit

I couldn't find anything in the LC FAQ on this. It may be covered on this board but I haven't found it.

dontvote
dontvote

Interest Radar IRR: 46.11%
NSR ROI: 41.22%
Average Loan Age: Your Moms

New Jersey Guy

  • Hero Member
  • *****
  • Posts: 914
  • Hell Yea it's a Hemi!
    • View Profile
    • Email
Re: what can p2p platforms really do to a credit score?
« Reply #1 on: March 13, 2013, 08:57:50 PM »
A default on an LC loan is no different than defaulting on any other type of bank loan.

The "Hit" doesn't happen all at once.  It's a gradual slide as the account moves from 30 days late, to 60, 90, 120 and eventually default.

The size of the hit is slightly dependent on what the borrowers score was to begin with.  A borrower with a score of 740 could suffer a smack of 100 points or more, while a borrower with a starting score of 650 may only suffer a loss of 70 points.

Go study some Folio notes that are 100 days past due and you'll see it for yourself.  As far as charged-off, here are a couple from my portfolio.

Starting score 780
https://www.lendingclub.com/account/loanPerf.action?loan_id=785053&order_id=3994947&note_id=5205594

Starting score 665
https://www.lendingclub.com/account/loanPerf.action?loan_id=1106792&order_id=3995178&note_id=8211040
Return over deposits:   66.82%
IRR:   86.54%
As of April 30, 2014

AmCap

  • Full Member
  • ***
  • Posts: 248
    • View Profile
    • Email
Re: what can p2p platforms really do to a credit score?
« Reply #2 on: March 13, 2013, 09:02:49 PM »
Those graphs made my soul hurt...

Randawl

  • Sr. Member
  • ****
  • Posts: 469
    • View Profile
Re: what can p2p platforms really do to a credit score?
« Reply #3 on: March 13, 2013, 09:31:23 PM »
Those graphs made my soul hurt...

And excellent Hall of Shame (TM) candidates!

viking

  • Sr. Member
  • ****
  • Posts: 370
    • View Profile
    • Email
Re: what can p2p platforms really do to a credit score?
« Reply #4 on: March 13, 2013, 11:27:43 PM »
I believe that it is not only a matter of score. Some banks may not even extend credit to someone with a charged off loan (or only at very high interest rates)

New Jersey Guy

  • Hero Member
  • *****
  • Posts: 914
  • Hell Yea it's a Hemi!
    • View Profile
    • Email
Re: what can p2p platforms really do to a credit score?
« Reply #5 on: March 14, 2013, 08:09:01 AM »
Those graphs made my soul hurt...

Here is another interesting observation answering 2 questions that are many times asked here:

1.)  Do borrowers asking for debt consolidation actually use the money for that?
2.)  Do many borrowers revert back to their old habits?

The answer to both is "Yes".  This is really evident on the second loan I posted.

That borrower took a 95 point UPWARD spike the first few months.  That indicates he used the proceeds to pay down his debt as promised.  But in months 7 and 8, he lost a lot of points because he most likely acquired more debt, and lots of it.  (To put it in perspective, I lost only 5 points when I took out my car loan in January).  Then he leveled off for two months, probably struggling to make payments.  After that, it was a lost cause.  He missed his LC loan in October, and lost 70 points.  Going 30 days on LC would not cause a drop that much, so it's a combination of other missed payments, most likely prior to October.

This is just theory, of course!  He may have lost his job for all I know.  However, nearly every charged-off loan I have shows the EXACT same pattern.  I can post more!

Another observation that could make it even worse than it looks is that the graph LC displays bottoms out at 499.  THIS IS NOT THE BOTTOM!  I've seen graphs where borrowers just drag that 499 line for months.  Odds are, their actual scores are even less than that.

Viking is correct.  Once your score drops to 630 it's difficult to get a loan at a decent rate. Once you drop under 600, you're basically sub-prime.  Once under 570, you'd be lucky if a sub-prime bank will even look at you.

 

Return over deposits:   66.82%
IRR:   86.54%
As of April 30, 2014

American in Busan

  • Newbie
  • *
  • Posts: 44
    • View Profile
    • Email
Re: what can p2p platforms really do to a credit score?
« Reply #6 on: March 14, 2013, 07:41:32 PM »
Anil, we need you to quantify NJ's assertions, stat!

New Jersey Guy

  • Hero Member
  • *****
  • Posts: 914
  • Hell Yea it's a Hemi!
    • View Profile
    • Email
Re: what can p2p platforms really do to a credit score?
« Reply #7 on: March 14, 2013, 08:14:49 PM »
(Graphic Warning:  Frightful images of lost money and mutilated FICO's.  Lenders who have heart palpatations at the first sight of a Grace Period Note are encouraged to NOT view the following post without first consulting with a qualified accountant.)

Here are a few more from my prized portfolio of charge-offs.

These are all debt consolidation loans, and you'll see the patterns are very similar.
There is an increase in the credit scores right after receiving their loan, then it's all downhill after that.

https://www.lendingclub.com/account/loanPerf.action?loan_id=635502&order_id=4200026&note_id=3243460#

https://www.lendingclub.com/account/loanPerf.action?loan_id=676042&order_id=5215858&note_id=3795144#

https://www.lendingclub.com/account/loanPerf.action?loan_id=700865&order_id=4221885&note_id=4054992#

https://www.lendingclub.com/account/loanPerf.action?loan_id=1124312&order_id=4992272&note_id=8489775#

Return over deposits:   66.82%
IRR:   86.54%
As of April 30, 2014

Lovinglifestyle

  • Hero Member
  • *****
  • Posts: 898
    • View Profile
    • Email
Re: what can p2p platforms really do to a credit score?
« Reply #8 on: March 14, 2013, 09:03:16 PM »
Thanks for sharing those!  I've noticed the same trend toward no collections efforts in March that your defaults seem to have. 

In the past week I've accepted some new notes with similar income levels requesting low amounts.  Going to rethink that (as if I didn't know better!!, lol) and hope LC removes them instead of issuing them!

AnilG

  • Hero Member
  • *****
  • Posts: 1088
    • View Profile
    • PeerCube
Re: what can p2p platforms really do to a credit score?
« Reply #9 on: March 15, 2013, 01:49:32 AM »
Anil, we need you to quantify NJ's assertions, stat!

Thanks for asking. Unfortunately, historical data doesn't show the final FICO score at the time of default, data only has score at the time of application.

In the past I covered both loan purpose and Credit score on my blog but I will look at them again sometime with eye toward finding some informed guesses to the question.
---
Anil Gupta
PeerCube Thoughts blog https://www.peercube.com/blog
PeerCube https://www.peercube.com

rawraw

  • Hero Member
  • *****
  • Posts: 2757
    • View Profile
Re: what can p2p platforms really do to a credit score?
« Reply #10 on: March 15, 2013, 06:47:46 AM »
New Jersey man, remember that all debt isn't created equal.  Credit card debt affects the FICO way more than installment loans (this is why you can take the same CC debt, get a LC loan, and improve your score so many points.)

I don't know how many of you look at credit reports in making credit decisions, but lenders look at both the score and the first page which describes the major derogatories affecting the score.  So both a loan being late and the score would impact their ability to get credit at a normal market rate.

New Jersey Guy

  • Hero Member
  • *****
  • Posts: 914
  • Hell Yea it's a Hemi!
    • View Profile
    • Email
Re: what can p2p platforms really do to a credit score?
« Reply #11 on: March 15, 2013, 11:11:19 AM »
"New Jersey man, remember that all debt isn't created equal.  Credit card debt affects the FICO way more than installment loans"

Rawraw is 110% correct.  But what goes around, comes around!

Sharper spikes (up or down) is a good indication of credit card usage or payments.  Last month I made a $69 purchase on Master Card.  It got reported before I paid it, and that $69 cost me 1 point on my FICO.  However, this week it did get reported.  That and another payment gained me 2 points.
 
Obviously, those aren't sharp spikes, but hits none-the-less for nothing more than very, very minor transactions. But the moral of this story is, if $69 cost me 1 point, how many points would I lose if I went and charged $1,000 today?  5 points?  10?  More?  I don't know.

One thing to remember is that once a borrower goes back over that 30% credit card utilization, the credit score will take even a bigger hit.  A double whaamy!

So, I've seen borrowers drop 40 points over a 2 month period, but yet their LC loans stay current for 2 or 3 months past that before going late.  That just tells me they are charging again, and it takes 2 or 3 months before all that new credit catches up with them and now they can't pay anybody, including Lending Club.

As far as installment loans, changes in the credit score are more gradual as Rawraw noted, BUT late installment loans will also affect credit cards!  Once a LC account goes 60-90-120 days late, credit card companies pick up on this.  THIS MAY RESULT IN CREDIT CARD COMPANIES REDUCING THE BORROWERS CREDIT LIMITS!  Lowering credit card limits may automatically toss a person over that 30% utilization.  In addition, how much credit is available to a person is a factor, and by losing available credit, that will drop a score.  It's a real double-edged sword.  But once this downfall begins, it gains momentum on it's own and starts a nose dive.

Any of you folks that have charge-offs can go back and look.  See if any of the patterns I've mentioned hold true on your notes.


Return over deposits:   66.82%
IRR:   86.54%
As of April 30, 2014

rawraw

  • Hero Member
  • *****
  • Posts: 2757
    • View Profile
Re: what can p2p platforms really do to a credit score?
« Reply #12 on: March 15, 2013, 05:39:20 PM »
Yea, which is why once a month I check the graphs of my loan's ficos.  Also, NJ man I don't mean to get too nit picky but how are you monitoring your credit.  Is it a FICO or a FAKO?  Makes a difference in terms of paying attention to what affects the score

viking

  • Sr. Member
  • ****
  • Posts: 370
    • View Profile
    • Email
Re: what can p2p platforms really do to a credit score?
« Reply #13 on: March 15, 2013, 05:49:11 PM »
Yea, which is why once a month I check the graphs of my loan's ficos.  Also, NJ man I don't mean to get too nit picky but how are you monitoring your credit.  Is it a FICO or a FAKO?  Makes a difference in terms of paying attention to what affects the score
For someone who has many hundreds of notes, how would you check all the Fico graphs, and how do you use the info to decide if the notes should be kept or sold?

SarahV

  • Guest
Re: what can p2p platforms really do to a credit score?
« Reply #14 on: March 15, 2013, 06:24:40 PM »
Yea, which is why once a month I check the graphs of my loan's ficos. 
I used to do that, but they stopped updating them as often... they haven't been updated in about 6 weeks.