Does anyone else think Prosper's "Prosper Score" is a joke?

[VT2VA]

I have seen so many listings with Prosper Scores that are just unbelievable.  Prosper lists the following as key variables:

■number of delinquent accounts
■delinquent balance
■number of inquiries in the past six months
■number of recently opened trades
■amount of available credit on bankcards

Somehow, through this algorithm, this listing has a score of 10: http://www.prosper.com/invest/listing.aspx?listingID=430619

whereas this listing has a score of 8: http://www.prosper.com/invest/listing.aspx?listingID=430468

Since the first listing ended up with a C Prosper Rating and the second ended up with an AA Prosper Rating, what good is the Prosper Score anyway?

« Moderator Edit: correct invalid URL link, by Investar »

[VT2VA]

I see one of the links is not working, so here are the lender stats:

First loan:

Prosper score:10
Credit score:680-700 (Oct-2009)
Now delinquent:0
Amount delinquent:$0
Public records last 12m / 10y:0 / 0
Delinquencies in last 7y:0
Inquiries last 6m:2
First credit line:Oct-1984
Current / open credit lines:26 / 24
Total credit lines:56
Revolving credit balance:$93,422
Bankcard utilization:78%
Home ownership:Yes
Debt/Income ratio:41%
Employment status:Full-time employee
Length of status:4y 2m
Stated income:$75,000-$99,999
Occupation:Other

Second loan:

Prosper score:8
Credit score:880-900 (Oct-2009)
Now delinquent:0
Amount delinquent:$0
Public records last 12m / 10y:0 / 0
Delinquencies in last 7y:0
Inquiries last 6m:1
First credit line:Jan-1974
Current / open credit lines:9 / 7
Total credit lines:18
Revolving credit balance:$2,672
Bankcard utilization:4%
Home ownership:Yes
Debt/Income ratio:Not calculated
Employment status:Full-time employee
Length of status:10y 8m
Stated income:$75,000-$99,999
Occupation:Analyst

Can anyone make sense of the Prosper Scores?

[BAEVentures]

Will update in a few with a detailed explanation.

[taxesformuchlessinc]

V2T2VA,

Are either of these your listings?

taxesformuchlessinc

[VT2VA]

Hi there.  No, I'm only a lender.  I also use "VT2VA" on Prosper. 

I'm just wondering what the Prosper Score is good for.  Do any of you give it any weight at all?  I know Prosper's official explanation is that the Prosper Rating is derived from the borrower's credit score and Prosper Score, and that the Prosper Score is based on a proprietary analysis.  However, the Prosper Score usually looks way off to me, and in practice, the Prosper Rating appears to be almost completely based on the credit score.  If the Prosper Score is based on the quantitative information in those two listings, how did one get an 8 and one get a 10, when the "key variables" for the one with an 8 look better to me?  Or (and this is a possibility), does Prosper also use other quantitative information that it does not disclose to lenders?  That would be a bit troubling.  I'm actually suspicious the Prosper Score is just something they made to satisfy an SEC demand, but it has little value.

[go4reward]

Somehow, through this algorithm, this listing has a score of 10: http://www.prosper.com/invest/listing.aspx?listingID=430619

whereas this listing has a score of 8: http://www.prosper.com/invest/listing.aspx?listingID=430468

Where is the score shown on the listing? I don't see that at all.

[deskguy]

Where is the score shown on the listing? I don't see that at all.
-------------------
 it is the first item in the credit profile.

 deskguy

[taxesformuchlessinc]

FICO bases their scores on everybody with a credit profile.

Prosper bases their scores only on people who get Prosper loan.

It makes a little bit of sense.  If people with extremely good credit are desperate enough to turn to Prosper there must be something wrong.  Their default rate is probably higher than those with OK credit that turned to Prosper right of the bat.

It's just a theory.  I think there rating system seems unfair to those with extremely good credit too.

taxesformuchlessinc

[VT2VA]

taxesformuchlessinc - You may be onto something.  I think I've seen you post that same line of reasoning before. I would note, though, that high credit score does not necessarily go hand in hand with wealth and/or income.

I know Prosper has back-tested their algorithm for the Prosper Score, so I guess what they may have found is that borrowers with MORE recent inquiries and HIGHER bankcard utilization (each only to a certain point, I assume) have had lower defaults in their sample.  If so, that's...strange, but certainly possible.  The CW (and my intuition) tells me that fewer inquiries and lower bankcard utilization are better.  On the other hand, Prosper may have found a "sweet spot" of a couple inquiries and a moderately high level of bankcard utilization to be the lowest default risk.

Either way, I'm curious as to why the Prosper Rating does not seem to take into account the Prosper Score more than it does.  Perhaps Prosper thinks the patterns of default going forward will be different from those in its past?  Does anyone know the weight Prosper gives the Prosper Score vs. the credit score in how it derives the Prosper Rating?

[VT2VA]

Another interesting phenomenon - look at the earliest two listings from this borrower:

http://www.prosper.com/groups/member_home.aspx?screen_name=vivid-pound&display_mode=3

The first listing is a request for $6500, and Prosper gave it a Prosper Score of 6, a Prosper Rating of D and an estimated loss of 10%.  Upon relisting with only a change in amount requested to $3000 (actually also a reduction in the starting interest rate), Prosper gave it a Prosper Score of 9, a Prosper Rating of A and an estimated loss of 2.1%.

I have to say I'm amazed that the reduction in amount requested caused such a dramatic improvement in the Prosper Score and Prosper Rating.  That would indicate to me that Prosper uses amount requested as a very important variable in the calculation of the Prosper Score, yet Prosper does not list that as a key variable.

[deskguy]

 VT2VA said ... I would note, though, that high credit score does not necessarily go hand in hand with wealth and/or income.
----------------------
 amen to that. i have a fico score of 820. great wealth - hell, moderate wealth  - has escaped me for 79 years. it just means i paid my bills on time.

 deskguy

[sosocratic]

It makes a little bit of sense.  If people with extremely good credit are desperate enough to turn to Prosper there must be something wrong.  Their default rate is probably higher than those with OK credit that turned to Prosper right of the bat.

It's just a theory.  I think there rating system seems unfair to those with extremely good credit too.

I think you are right. In my playing with the numbers I have often found that the things like DTI, inquiries, delinquencies etc have big effects at the higher incomes and credit scores but not so much effect for the lower ones. My theory is that for lower scores those things are factored in already so you are counting them twice if you consider them seperately. Another way to look at it is that it just makes sense. A low rating goes with a few dings on the record.

In the other hand, if a profile shows a few of those risk factors but the credit rating is high it implies that the factors have not already been accounted for and that something is amiss.