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Author Topic: what can p2p platforms really do to a credit score?

d
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what can p2p platforms really do to a credit score?
OP: March 12, 2013, 11:00:00 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
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N
  • Posts: 98
what can p2p platforms really do to a credit score?
#1: December 31, 1969, 07:00:00 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
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A
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what can p2p platforms really do to a credit score?
#2: December 31, 1969, 07:00:00 PM
Those graphs made my soul hurt...
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v
  • Posts: 46
what can p2p platforms really do to a credit score?
#4: December 31, 1969, 07:00:00 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)
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T
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what can p2p platforms really do to a credit score?
#5: December 31, 1969, 07:00:00 PM
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.

 

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what can p2p platforms really do to a credit score?
#6: December 31, 1969, 07:00:00 PM
Anil, we need you to quantify NJ's assertions, stat!
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T
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what can p2p platforms really do to a credit score?
#7: December 31, 1969, 07:00:00 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#

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L
  • Posts: 241
what can p2p platforms really do to a credit score?
#8: December 31, 1969, 07:00:00 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!
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r
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what can p2p platforms really do to a credit score?
#10: December 31, 1969, 07:00:00 PM
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.
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T
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what can p2p platforms really do to a credit score?
#11: December 31, 1969, 07:00:00 PM
"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.


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T
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what can p2p platforms really do to a credit score?
#12: December 31, 1969, 07:00:00 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
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