New FICO Rules May Benefit Peer-to-Peer Loan Borrowers
We all know how consolidating debt with a person-to-person loan can help to save you money and get you out of debt more quickly. New FICO scoring rules may provide an added benefit to peer-to-peer loan borrowers: a boost in their credit score.
In their March 2008 issue, Money magazine reported that Fair Isaac, the company whose formula determines your credit score, is updating that formula. There were a few areas where this update could affect your credit score. One area in particular, having a few kinds of credit, could favorably impact everyone with a peer-to-peer loan.
As a result of this update, having an installment loan, like a P2P loan from Lending Club, in addition to other forms of credit, like credit cards, could give your score a boost. Having these multiple types of credit, along with making regular payments and maintaining low balances was reported to raise credit scores by as much as 25 points.
By consolidating debt with a peer-to-peer loan, you are not only taking on a different kind of debt, but you will also be able to maintain a low balance on your credit cards. You’ll be making monthly payments to your loan, so that criterion will be met as well. As you pay off your loan, you will be lowering your credit utilization, which could help your score even more.
It is expected that these changes may take some time to be adapted by the three major credit bureaus. In the meantime, you can rest assured that your peer-to-peer loan may be helping you in more ways than you expected.
Monday, April 28th, 2008 at 6:30 am