Assessing Borrower Risk

(part 16 of my Prosper Lending Presentation)

Just because someone is an AA doesn’t mean they should get a 25k Prosper loan! Based on their income and DTI, they might only be considered an AA for a 1k loan.

Credit Grade is not the only thing the Prosper lender should be looking at. Actually, in my opinion, Credit Grade is quickly becoming a thing of the past.


When Prosper was first launched, the idea (I’m assuming) was to break borrowers into risk segments based on their Experian ScoreX Plus score. Each segment had an associated risk. These were our credit grades. AA, A, B, C, D, E, and HR.

For the professional lender, these scores might have carried more weight in combination with either the full credit report or a proprietary scoring system that could both assess risk and establish maximum credit amounts. (the scoreX Plus score default rates used in Prosper’s past were derived from bank card products, not personal, over-the-internet type loans)

Fortunately for us Prosper lenders now, Prosper has created the Bidding Guidance which references one of 103 Credit Segments based on actual Prosper historical loan performance. (as opposed to the initial 7 credit segments / grades we had initially)

Would you believe that the best performing D grade Credit Segment has historically carried a lower risk than the worst performing AA grade Credit Segment? Look at the details for each of these. The best performing D grade slice is a low amount, non-autofund, with 0 current delinquencies and a low number of recent inquiries. Meanwhile, the worst AA slice is an autofund for more than $10,000.

Crikey!

Credit grades don’t carry nearly the weight that they used to, thanks in part to the improved Bidding Guidance and Prosper’s Performance Page. Prosper’s Credit Segments pare each Credit Grade down and weed out the historical non-performers for you. It’s a beautiful thing.


The Credit Slices are a great improvement on Prosper for us lenders. But there are a few other things that help the manual bidder assess risk even further, beyond both the grade and the credit slice…