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Impact of Changes in Lending Club Credit Criteria on Credit Grade - Six Months After

Posted by Anil Gupta | Sunday June 30, 2013, 11:11 pm | Categories: Lending Club

Earlier this year, I wrote about the changes in credit criteria by Lending Club in my posts Lending Club Loans - Impact of Recent Changes and Recent Changes in Minimum Credit Criteria by Lending Club. One of the key takeaways from these posts was:

  • The "proprietary scoring model" appears to have made some adjustments that is shifting the loans across credit grade, most probably toward B and C credit grades.
Recently, I decided to revisit the historical loan data from the past six months and approximate comparable loans in prior year. As historical loan data files captured June 1, 2013 and May 1, 2012 were available, I decided to compare the loans issued between November 1, 2012 and May 1, 2013 (referred as since 11/2012) with the loans issued between November 1, 2011 and May 1, 2012 (referred as since 11/2011).

My expectation is to identify any trends due to changes in credit criteria. Mind you, this is not a rigorous analysis and there can be myriad of reasons, other that changes in credit criteria, that could explain the observed differences.

Credit Grade and Loan Volume
The first two charts below show the percentage loan volume by credit grade for loans issues since 11/2012 and 11/2011 respectively. While the percentage of loan volume is almost similar for Credit Grade B, E, F, and G since 11/2012 and 11/2011, there is significant increase in share of loans with C and D credit grades and decline in share of loans with A credit grade.

This observation is similar to the observations made in my previous post on this topic. It appears that Lending Club is assigning grade A to fewer loans compared to previous year. On absolute volume basis, Lending Club still issued more loans with grade A (6,712) since 11/2012 compared to same period (4,315) since 11/2011. The total loan volume was also almost three times higher, 45,628 since 11/2012 compared to 16,155 since 11/2011.

Credit Grade and Loan Status
The last two charts below show the loan status by credit grade for loans issued since 11/2012 and 11/2011 respectively. For ease of display, loans with status - Current, Issued, and In Review are hidden and loans with status - Charged Off, Default, In Grace Period and Late are combined together (referred as Late).

One observation that right away stands out is that there were no late loans with grade G since 11/2011 compared to highest percentage of late loans with grade G since 11/2012. This may be due to low volume of grade G loans since 11/2011. We can't be sure that this change in grade G loans is influenced by the changes in credit criteria. The late status for loans since 11/2012 appears to be much more consistently rising with credit grade compared to prior year.

Due to significant difference in loan volume for lower credit grade loans and relatively short time period since changes in credit criteria, meaningful comparison is difficult to make between the two time frames using loan status charts.

Overall, I am pleased to see higher percentages of grade G loans with late status and lower percentage of such loans with fully paid status. It never made sense to me why grade G loans will behave differently compared to other grade loans.

Key Takeaways
  • It is still too early to make definite observations regarding impact of changes in credit criteria on different credit grade loans.
  • Overall, it appears the changes in credit criteria may have positive changes in performance variation between different credit grade loans. 


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