Eric's Credit Community

By far the most common question people have asked me over the last few months regards the credit grades they see for listings and loans on this site.  They compare the credit grade I show here with the ones they see on Prosper and they just don’t match up.  For example, you might see a listing here that has an “A” credit grade, but on Prosper.com it shows it as a “C”.  So what gives?

First, for those of you new to Prosper, a bit of history.  About a year ago when Prosper re-launched the site after going through the SEC registration debacle, they changed the way that credit grades were calculated.  Rather than simply using Experian credit score ranges to assign a credit grade, now the credit grades are calculated based on historical performance of actual Prosper loans.  In addition, the minimum credit scores to qualify for a loan at all were raised significantly to combat the high default rates in the lower credit grades.  So, after the rating change, a loan that was once an “A” might now be a “B” or a “C” and one that used to be an “HR” probably wouldn’t even qualify to list a loan at all anymore.

So, we now have two grading systems.  The “old” system that has roughly 3 years of historical data behind it, and the “new” system that has only about 1 year of data.  In the data export that Prosper provides, they continue to provide the “old” credit grades for old and new loans, but they provide the “new” credit grades only for the new loans.

That leaves me with a choice.  If I stick with the old grading system, I have 4+ years of historical data to use for my reports, but the data is less useful since the credit grades don’t really map to the credit grades you are seeing on the Prosper site for new listings.  On the other hand, if I switch to the new system, I only have 1 year of data to work with.  With only 1 year of data, it’s really hard to draw any good conclusions about risk and default rates.  So while the data would be more directly applicable to real Prosper listings, there simply isn’t enough of it to have much confidence in the statistics.

Neither choice is a very good one, but for now my choice is to stick with the old system.  I know it’s confusing, but hopefully Prosper will resolve this issue by back-calculating the new credit grades for the old loans.  In the meantime, I guess it is what it is, and I certainly welcome your feedback or any other ideas on how to handle this situation.