P2P Lending / NFT Lending Forum

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/

"So, it's cheaper?"

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."

from: SeanMcD on August 05, 2013, 03:10:02 PM

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).

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.

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.

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................

Dennis,

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

from: Zach on August 30, 2013, 09:22:55 PM

from: Dennis on August 30, 2013, 09:18:28 PM

from: Dennis on August 30, 2013, 09:18:28 PM

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

 

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...