This is a guest post from a regular reader pjz…

The following table shows zero DQ loans by inquiries.

0 DQ inquiries	0	1	2	3-4	5-7	8-999
1+  month late & default	48	56	59	95	123	134
loans active, billed	1565	1364	929	1157	886	684
1+ month late & default %	3.1%	4.1%	6.4%	8.2%	13.9%	19.6%

The next table shows zero DQ loans with 0-2 inquiries by credit grade:

0 DQ & 0- 2 Inquiry credit grades	AA	A	B	C	D	E	HR
1+  month late & default	7	16	20	40	42	26	10
loans active, billed	736	657	741	768	624	238	89
1+ month late & default %	1.0%	2.4%	2.7%	5.2%	6.7%	10.9%	11.2%

High inquiries can push your late rate up more than low inquiry E and HR loans!

My theory on this is that when Prosper used to show the historical Experian default rates, they stated that the default rates are for borrowers of bank loan products. That means that all of the borrowers in the default rate table must have been approved by a Bank. Prosper borrowers may or may not be approved by a Bank. Therefore, as a group, they are higher risk than the Experian default rates. And out of this higher risk group, the borrowers with the highest inquiries are the highest risk since they probably actually have been rejected by a Bank.

Lendingclub’s historical default data is compiled by TransUnion. Their default rate data could be incorrect for the same reasons.

LendinClub also makes this claim:

Typically, lending communities experience fewer defaults than banks because they are founded on the premise that people are less likely to default to a community of people they feel close to versus a faceless bank.

The internet community of Facebook is not a typical lending community. The only lending community similar to Facebook is Prosper.

See that bidding on just zero DQs is just as good as bidding on zero Inquiries.

Zero DQs is 6.52% late:

http://www.ericscc.com/index.php?page=borrower_segments&field=now_delinquent

Zero Inquiries is 6.49% late:

http://www.ericscc.com/index.php?page=borrower_segments&field=inquiries_last_6_mo

 

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