Lending Club and how it impacts your credit score

[Anonymous]

Hello all,

I thought I would dive in with a question as I have been reading these boards a while and thanks to all the advice here I got my credit scores into good shape over the last 12 months.

I have been considering getting a loan.

I have been looking at rates before I apply, and took advantage of checking what rate I would get from Lending Club for a 16,000 loan.   I then compared to my bank's rates and places like Discover etc.    The Lending Club loan rate is a good 2 pct LOWER than my bank advertises even for their best rate.  

However, I have been reading up and wondered if Lending Club on my credit report would be treated as sub-prime or get different treatment to say Bank of America.  Has anybody had any experience with this?    The one thing I don't like about the loan is if I pay more early they shorten the term rather than keep the term and lower the payments they don't give the option to keep the original term (so I can't keep the utilization benefit if I pay a big chunk early).

I keep a total 1% utilization across my Credit Cards right now with only 1 card with a tiny balance monthly against available credit of 36,000 with 7 cards and while I know for a period the loan will impact my scores, as I will be getting a new mortgage in 6 monthsI don't want it to take a further hit from the "type" of credit I have too.   

I also have a Sleepy's card (annoyed at myself it was when my credit wasn't great) with a zero balance that isn't my oldest or newest card with a smaller limit (1200) I am thinking about shutting it but I think I understand correctly that even if I do shut it still will count on my average age of accounts?

Welcome any thoughts/experience.  Thanks so much.

[Khalifa_Jayy]

We got a Lending Club loan in my wife's name, and her credit only went up (due to, I'm assuming, a much more favorable Utilization Ratio). I'd say give it a shot, to be honest. I don't see it hurting your credit at all, save for the inquiry...

[Anonymous]

What is the $16k for?

I'm curious because it sounds like you don't really have any CC debt and folks usually use these kind of loans to consolidate CCs.

[CreditInspired]

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@Anonymous wrote:

What is the $16k for?

I'm curious because it sounds like you don't really have any CC debt and folks usually use these kind of loans to consolidate CCs.

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I was wondering the same thing. If your utilization is already at 1% and you're preparing to get a mortgage in ~6 months, why get a loan?

[Anonymous]

Look forward to hearing what purpose our OP has in mind for this loan.  I note that he writes:

The one thing I don't like about the loan is if I pay more early they shorten the term rather than keep the term and lower the payments they don't give the option to keep the original term (so I can't keep the utilization benefit if I pay a big chunk early).

That suggests that he might have no open installment loans and is interested in getting it purely for a scoring benefit.  Is that right?

As far as his second question (about the Sleepy's card)... nope there is really no downside to closing it.  No impact on AAoA, no impact on utilization (given how you describe it), and you will still have six open cards after it is closed.

There is about a 1 out of 300 chance (or less) that the account will get deleted completely from the report in the couple months following the closure.  And that would have a possible effect on AAoA.  That's very unlikely -- but still possible.

[Anonymous]

Thanks for the responses I really appreciate it.

To answer the question:  The loan I am using it for some work on our house to max the selling price (windows upgrade, a roof repair, and some cosmetic clean up).

The rate on the loan is a third of the % of what my lowest credit card rate would be so am trying to be frugal on cost of credit.

I don't want to dip into my house equity or touch my savings which will all be dedicated to the new purchase.  Hence a loan six months ahead of time I thought would be ideal as it would have aged a bit by then and if I hit some targets at work I may even be able to get it down to a 9% utilization with extra payments before the mortgage process.   Also I have no other installment loans, so adding one to the mix reading the boards I believe will help my score in the longer term too.

I am not really an expert at all this as you can see so welcome your thoughts on the credit impact    My main concern was that the credit agencies might turn their noses up as a lending club loan and rate it as some kind of sub prime outfit that would ding my score beyond the new credit line and hard pull.

[Anonymous]

The key thing our OP is worried about is whether the loan will get flagged as a consumer finance account.  Unfortunately accounts can get flagged as a CFA without it being visible to us reading it on the report.  CFAs are indeed penalized by some FICO models. 

I have no idea whether FICO might view LC as a consumer finance company.  Here's a place to begin researching this:

https://www.google.com/search?q=is+lending+club+a+consumer+finance+company+myfico&oq=is+lending+club...

You will see that some people say Yes, some No, some I Don't Know.

[Anonymous]

Ah that was the term I was looking for, thanks for that thread I would have never found it with what I was trying to search for.

Sounds like it's too risky to get Lending Club even at their 5.99% rate for the loan as I don't want one of those reporting near to the mortgage.

To Plan B (I Just need to figure out what that is!).