Author Topic: How much emphasis to put on FICO Scores?  (Read 2808 times)

InvestorinCA

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How much emphasis to put on FICO Scores?
« on: March 27, 2017, 03:14:51 AM »
I understand the importance of FICO scores and what they mean as far as borrower reliability, I have a good FICO score myself. I am wondering though if I could get some feedback on FICO scores in general. I've been basing my investing strategy (which is soon to begin with a fairly small amount compared to most) off loan grades and interest rates, but maybe I should be looking at FICO scores more closely? Is there a range that most people find acceptable? Such as 700+ etc. It seems very hard to find loans to fund once you really start to narrow down the FICO scores though, unless you're an investor solely going after A and B grade loans.

Looking for any input on this since I'm brand new!

Fred93

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Re: How much emphasis to put on FICO Scores?
« Reply #1 on: March 27, 2017, 04:45:40 AM »
You could go to www.nsrplatform.com and use their back testing tool to examine how FICO scores have impacted loan performance in the past.  That should give you some visibility into this question.

InvestorinCA

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Re: How much emphasis to put on FICO Scores?
« Reply #2 on: March 27, 2017, 02:00:54 PM »
You could go to www.nsrplatform.com and use their back testing tool to examine how FICO scores have impacted loan performance in the past.  That should give you some visibility into this question.

Thanks for the reply. I should have also said, I am using NSR and use their back testing tools. I'm trying to connect the dots and reading some member's posts on here about FICO scores and changes and how they affect repayment, as well as the inaccuracies with back testing, regarding the last couple of years being a bit tougher with higher default rates. So I guess I'm second guessing what I put together since it's saying a 10% ROI, but it seems no one is getting that high of a return so looking to where I can minimize risk. It SEEMS like that with the filter I have, anthing 680 or higher takes out a lot of the defaults, just wondering if anyone else does anything similar.

fliphusker

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Re: How much emphasis to put on FICO Scores?
« Reply #3 on: March 27, 2017, 03:33:45 PM »
You could go to www.nsrplatform.com and use their back testing tool to examine how FICO scores have impacted loan performance in the past.  That should give you some visibility into this question.
While I think that backtesting is valuable on the primary market (take that with a grain of salt with the deterioration), I think it gets thrown out on the secondary market. Sure you can weed other things out on the secondary market (for me sand states), but what it really boils down to is FICO and payment history.
Killing a FICO score is easy, rebuilding it is the tough part. So does making a mess of it and then becoming stable, make it a bad risk?
If a borrower of a 5-year note defaults on other debt in the first 6 months and is 24 months into his loan with a clean payment history and a stable FICO score after his debacle and an 80 point FICO score drop, is it a bad note to buy?
You mention A and B notes, but my thoughts are grades no longer matter on FOLIO. Only the almighty YTM.
I am a small FOLIO investor compared to some of the big boys here and willing to take on more risk as well. In the past 7+ months on FOLIO, I feel I am on the right track with my strategy.

lascott

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Re: How much emphasis to put on FICO Scores?
« Reply #4 on: March 27, 2017, 04:06:02 PM »
I've used FICO score as one of my 3 sets of criteria (FICO, grade ("LC score"), and 3rd party scoring).  I used different FICOs for different grades.

I'm not clear how much it is helping me. I have over 8.4% defaults and I'm pretty conservative in what grades of notes I'm going after.  Getting higher FICO notes (and LC grades) may lead to those "responsible" people paying their notes back early ... which means I have to then reinvest.   29% of my notes have been paid off in full and I'm just in this 3 years.

See these two post of table data from a good sample of regular users.  I thought I would have done better with my conservative approach. I think I'm above average but not nearly as high on LC as I used to be.

Post 1 (also see post right after that) http://forum.lendacademy.com/index.php/topic,3365.msg40068.html#msg40068

Related to my above average comment is my blue dot:
Tools I use: (main) BlueVestment: https://www.bluevestment.com/app/pricing + https://www.interestradar.com/ , (others) Lending Robot referral link: https://www.lendingrobot.com/ref/scott473/  & Peercube referral code: DFVA9Y

Paulie2083

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Re: How much emphasis to put on FICO Scores?
« Reply #5 on: March 27, 2017, 06:52:24 PM »
I understand the importance of FICO scores and what they mean as far as borrower reliability, I have a good FICO score myself. I am wondering though if I could get some feedback on FICO scores in general. I've been basing my investing strategy (which is soon to begin with a fairly small amount compared to most) off loan grades and interest rates, but maybe I should be looking at FICO scores more closely? Is there a range that most people find acceptable? Such as 700+ etc. It seems very hard to find loans to fund once you really start to narrow down the FICO scores though, unless you're an investor solely going after A and B grade loans.

Looking for any input on this since I'm brand new!

Not surprisingly, you'll get a lot of different answers depending how much risk an investor is willing to take on. but, if you're looking for a hard set number, i personally invest in D/E loans and my criteria excludes anyone with a credit score of less than 665. As i said though, its just one of many different varying answers.

AnilG

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Re: How much emphasis to put on FICO Scores?
« Reply #6 on: March 27, 2017, 07:18:34 PM »
You might want to consider reviewing my blog posts at PeerCube and previously personal blog http://andirog.blogspot.com/search/label/Crowdfunding. I have extensively analyzed available data and shared my findings. The post relevant to FICO score is "FICO Score Trends and Defaults for Lending Club Loans" https://www.peercube.com/blog/post/fico-score-trends-and-defaults-for-lending-club-loans

I understand the importance of FICO scores and what they mean as far as borrower reliability, I have a good FICO score myself. I am wondering though if I could get some feedback on FICO scores in general. I've been basing my investing strategy (which is soon to begin with a fairly small amount compared to most) off loan grades and interest rates, but maybe I should be looking at FICO scores more closely? Is there a range that most people find acceptable? Such as 700+ etc. It seems very hard to find loans to fund once you really start to narrow down the FICO scores though, unless you're an investor solely going after A and B grade loans.

Looking for any input on this since I'm brand new!
---
Anil Gupta
PeerCube Thoughts blog https://www.peercube.com/blog
PeerCube https://www.peercube.com

InvestorinCA

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Re: How much emphasis to put on FICO Scores?
« Reply #7 on: March 28, 2017, 01:39:39 PM »
You might want to consider reviewing my blog posts at PeerCube and previously personal blog http://andirog.blogspot.com/search/label/Crowdfunding. I have extensively analyzed available data and shared my findings. The post relevant to FICO score is "FICO Score Trends and Defaults for Lending Club Loans" https://www.peercube.com/blog/post/fico-score-trends-and-defaults-for-lending-club-loans

I understand the importance of FICO scores and what they mean as far as borrower reliability, I have a good FICO score myself. I am wondering though if I could get some feedback on FICO scores in general. I've been basing my investing strategy (which is soon to begin with a fairly small amount compared to most) off loan grades and interest rates, but maybe I should be looking at FICO scores more closely? Is there a range that most people find acceptable? Such as 700+ etc. It seems very hard to find loans to fund once you really start to narrow down the FICO scores though, unless you're an investor solely going after A and B grade loans.

Looking for any input on this since I'm brand new!

Thanks all for the input.

That post was particularly helpful. It seems like the majority of loans with the right criteria set are fine starting out at almost any FICO score level, which makes sense. If someone has bad debt, and is looking to get out of it (most LC loans are debt payments) then they will have a low FICO regardless. It's more of what happens after they open the loan is what makes a difference.

rawraw

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Re: How much emphasis to put on FICO Scores?
« Reply #8 on: March 28, 2017, 06:18:42 PM »
FICO rank orders risk.  The credit report data you get from LC is already in that number.  THe data that isn't in there is data that isn't in a credit file, such as income.  This doesn't mean that high FICOs won't have high losses, it just means in general their losses will be less than lower FICO notes.  Think of it a risk sorting mechanism