This should be next to last post on my Lending Club filters. As in the last post, items in bold and red are filters that the Lending Club website itself cannot perform, but can be performed with downloaded loan data from the website. Onto the filters:
9. Remove loans of borrowers with more than 5 credit inquiries in the last 6 months more than 1 credit inquiry in the last 6 months (8/14/2011)
Whenever any borrower asks for a loan, the lender performs a credit check by requesting (AKA inquiring) for your credit history from one of the three credit bureaus (Experian, TransUnion, or Equifax). So if a borrower has a bunch of credit inquiries in the past 6 months, it means they are requesting a bunch of lines of credit. This is a big red flag to me. It signals that the borrower is frequently looking to borrow money and they don’t have a good handle on their personal finance situation and should be passed up.
10. Remove loans of borrowers with revolving credit utilization above 90%
Credit utilization is a pretty easy concept. Say I have a credit limit of $10,000. If I currently have $1,000 in outstanding loans, I have a credit utilization of $1,000 divided by $10,000 or 10%. If I have $9,500 in outstanding loans with the same credit limit, my credit utilization is 95%.
In a similar vein to my discussion of a high debt-to-income ratio in my last post, high credit utilization is an indication that the borrower is close to being “maxed out”. One minor crisis and they will be pushed over the edge and will be likely to default, so I avoid them.
11. Removing loans of borrowers with revolving credit balance above $50,000
This is just a lot of money to owe, no matter what your income is.
12. Remove loans of borrowers with monthly payments on their Lending Club loan above 20% of gross income
Here’s another filter that is not currently available on the Lending Club website (and also related to debt-to-income). I don’t want the borrower’s Lending Club loan to be a massive portion of their monthly cash flow. If it is, the borrower is more likely to default from the very start of their loan as the large cost immediately overwhelms them, plain and simple.
Next week I’ll finally wrap up my Lending Club filters!
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