Prosper ditching "Scorex Plus" and moving to "FICO" mid August

[SeattleSun]

Anyone want to read the "tea leaves" about this snipet from Prosper's August Newsletter.  I seeing lower borrower rates, is that correct?  TIA


New credit scoring – In mid-August will be updating the credit bureau model that we use in conjunction with the Prosper Score to calculate our Prosper Rating. We are replacing our current scoring model, Scorex Plus™, with the more widely recognized FICO® Score. Our Credit Risk team has done extensive statistical analysis to evaluate several bureau scorecards and found that the FICO® Score is the most effective. The FICO® Score is the most frequently used credit bureau scorecard among lenders in the consumer finance industry. This change will more directly align us with industry standards, and will also enable us to better meet borrower expectations with our rates and offers.


Full Newsletter on Prosper Blog here    http://blog.prosper.com/

[nonattender]

"So, it's cheaper?"

[SeanMcD]

I don't know that it necessarily means lower rates.  I interpreted that line as "We'll get less phone calls from borrowers who want to know why their rate was so high when their FICO was good."

[Peter]

I don't know that it necessarily means lower rates.  I interpreted that line as "We'll get less phone calls from borrowers who want to know why their rate was so high when their FICO was good."

That is how I read it as well. I am going to discuss this change with Prosper's chief risk officer in coming days to get the full story. Look for a post about it in a  week or two.

[neals384]

Does anyone know if there is a correlation between Scorex and Fico?  If a borrowewr's Scorex is 700, would we expect their FICO to also be 700?  720?  680? 

This change could have huge implications for Prosper lenders.  We may need to adjust our screens, AQIs, API logic, and so on. 

It would be good to now the xact date for the cutover (not "mid-August").  Otherwise, we may be screening out good loans (if FICO is typically lower than Scorex) or investing in bad loans (if it's the other way).

[Peter]

It is very difficult to get any good information on Scorex and I have never seen a correlation table with FICO. But I will certainly be asking this question when I talk with their Risk Officer.

[core]

Just got this email from Prosper:

We are excited to announce that next week we are replacing our current credit bureau scoring model, Experian Scorex Plus™, with the FICO® 08 Score. The FICO® 08 Score is the most frequently used credit bureau scorecard among lenders in the consumer finance industry and therefore the most widely recognized. This transition will strengthen our credit policy by more directly aligning us with industry standards and will enable us to better meet borrower expectations with our rates and offers.

For more details, please read our blog post on this topic. All lenders will receive email notification when this change goes live to our platform next week.

I actually didn't know that the Fair Isaac model was locked into '08.  Strange that they should so aggressively advertise something that's 5 years old.  Why not simply say FICO®?   Next they'll be telling us that they're revamping their web site and will be using Fortran '77.  Maybe I should put in my developer application now.  I knew that language would come in handy some day.

[Dennis]

So does this mean Prosper interest rates will be further reduced in the higher risk notes (D - HR)?  It wasn't that long ago I could find all the HR notes I wanted since there were many borrowers in that class that met my criteria.  The new management changed all that though and those higher risk applicants got assigned a lower risk rate (lower interest rates).  It was probably more fair and more accurate to the borrower, but gone were my 30% returns in that class.  However, with the lower rates, it probably brought a few more borrowers to the platform - there's good and bad to everything.  Lower rates may help to increase the supply of notes on the platform, by attracting more borrowers, but that may also mean fewer lenders attracted to Prosper as investor returns will be lower - not saying that's a bad thing.....  So in a nut shell, more borrowers but lower investor returns.

I did a little research on FICO® 08 and found at least one thing in their scoring that may be a little disturbing:

"If you have a single serious delinquency, that is, one account that's gone 90 days past due or more, your FICO 08 credit score won't hurt as much if you have several other accounts that are in good standing."

So not paying your bills now is no big deal??  It's a big deal to me if I'm the lender on the other side of that borrower, 90 days late is serious.  In my opinion that should be reflected in a persons credit score.  But with FICO® 08 it's no big deal anymore and that borrower will have a higher FICO score now.  I don't like it...

What does everyone think................

[Zach]

Dennis,

I merged your post with this existing thread - it discusses the exact same topic. Trying my best to keep the forum organized

[Dennis]

Dennis,

I merged your post with this existing thread - it discusses the exact same topic. Trying my best to keep the forum organized

Thanks Zach.  I noticed only after I started a new topic that there was already a thread going on it - oops.  Nice job on your part to quickly notice that.

I edited out some of the repetition from my previous post here so as to not duplicate what's already been said.  Thanks for saving me from a little embarrassment. 

[core]

So not paying your bills now is no big deal??

It's a big deal to you and me because that's one of the few things we have to gauge risk.  But the institutions don't care what number is presented because they have their own risk models and once provided with secret borrower data can come up with a better score than even the scorers.  In essence you're getting the shaft.  Common theme, you saw it coming.

That's my official answer.

Off the record, though, FICO has always taken into account 90+ days late in the context of your other debt.  If you've got 20 credit cards 'pays as agreed' and just one 90+ days late, your score is going to be better than a guy with just one tradeline which also happens to be seriously late.  Nothing has really changed with the FICO.   Business as usual there.   Please keep that to yourself.

Scorex vs Fico, there are no doubt plenty of issues to be discussed for the hair splitters.  My main concern would be the equivalence of numbers on the scale.

[agd]

So does this mean Prosper interest rates will be further reduced in the higher risk notes (D - HR)?  It wasn't that long ago I could find all the HR notes I wanted since there were many borrowers in that class that met my criteria.  The new management changed all that though and those higher risk applicants got assigned a lower risk rate (lower interest rates).  It was probably more fair and more accurate to the borrower, but gone were my 30% returns in that class.  However, with the lower rates, it probably brought a few more borrowers to the platform - there's good and bad to everything.  Lower rates may help to increase the supply of notes on the platform, by attracting more borrowers, but that may also mean fewer lenders attracted to Prosper as investor returns will be lower - not saying that's a bad thing.....  So in a nut shell, more borrowers but lower investor returns.

I did a little research on FICO® 08 and found at least one thing in their scoring that may be a little disturbing:

"If you have a single serious delinquency, that is, one account that's gone 90 days past due or more, your FICO 08 credit score won't hurt as much if you have several other accounts that are in good standing."

So not paying your bills now is no big deal??  It's a big deal to me if I'm the lender on the other side of that borrower, 90 days late is serious.  In my opinion that should be reflected in a persons credit score.  But with FICO® 08 it's no big deal anymore and that borrower will have a higher FICO score now.  I don't like it...

What does everyone think................

I would guess that the main driver of underwriting will likely remain their own custom risk score.  I've analyzed the FICO score & the Scorex score in relation to Prosper's custom risk score, and they both add very little added discriminatory power in predicting losses.  FICO is slightly better than Scorex, but only very marginally so.  The area it may be more heavily used in setting rates is likely in relation to competitiveness as more of Prosper's competitors are more likely to use FICO.   In my opinion the real reason to use FICO is that it is a risk metric that more people speak; helping the retail investor better understand the risk level of the posting, and allowing institutional investors to control risk levels across multiple platforms.

[SeattleSun]

From Orchard - Credit Variables Explained – Credit Scores on Prosper

"We view Prosper’s recent score upgrade as a very positive improvement."

"The Bottom Line
As a lender, it is good to understand which scores are being utilized to underwrite your loans.  Prosper’s move to FICO® 08 is a positive step for investors in that platform as well as for the industry as a whole.  Given the charts above, we expect that loans underwritten by Prosper under the new scoring regime will have more consistent performance within each alphabetic rating, which ideally will result in better rates for borrowers as well as more predictable returns for investors."

http://www.orchard-app.com/blog/?p=462

 

[nonattender]

True as far as it goes, no one knows how ScoreX Plus worked, anyway - not that FICO 08 is a heck of a lot more transparent, though, I
do suppose more people are familiar with it and could perhaps have a better "feel" about where to set the magic number on a wheel...