Late night web browsing brought me view Rate Ladder’s first Lending Club portfolio. He posted some good suggestions for improving Lending Club as I think I did on my review of my first loan portfolio with Lending Club.

One item in his review of his first Lending Club portfolio left me scratching my head when compared to my first loans.

About Rate Ladder’s first portfolio:

Here is the mix of Lending Club credit grades of my initial 20 bids ($500)…

RateLadder Lending Club Portfolio Mix

* A color chip A (30%)
* B color chip B (5%)
* C color chip C (25%)
* D color chip D (5%)
* E color chip E (15%)
* F color chip F (10%)
* G color chip G (10%)

This portfolio has a weighted average rate of 11.63% and an expected monthly payment of $16.45.

It has a risk level (what is this?) of 2/5.

I too am left wondering what is the Risk Level and what does it mean. Let me use the examples of my two loan portfolios at Lending Club:

The first loan portfolio is compromised of 11 loans which are exclusively of A, B, and C credit risks. I was very conservative since this was my first set of P2P loans to extend. The Lending Club risk score was 2 out of 5. The second loan portfolio consists of only 4 loans C (1), D (2), and E (1). The risk score assigned is 5 our of 5. When looking at the risk scores of only my two portfolios, the risk score made perfect sense. My first portfolio included more loans at a much higher grade.

Now, compare my first portfolio which is 11 loans of only A, B, and C and rate ladder’s which includes 40% of his portfolio in the lower three grades (D, E, F, G) with a total of 20 loans. His portfolio also receives the same 2 out of 5 risk score. Rate Ladder took on lower credit grades but across more loans so it may be justified. Does anyone have any more portfolios to share along with the risk score so that together we can try to gather a better understanding of the how the risk rating score is generated? Anyone at Lending Club have a few minutes to comment on the Lending Club risk score and how it is calculated?

At this ten seconds, I am thinking that the risk score is heavily weighted towards the number of loans in the portfolio. However, my research for advice for new P2P lenders, I did learn that too many new lenders put all their eggs in a single loan which creates tremendous default risk, so a risk ranking based upon percentage of the portfolio in a single loan my be a good way to prevent new lenders from making bad decisions.

Cross Portfolio View Needed

In addition to an advanced search that Rate Ladder requested and more fields displayed on the portfolio review page that I requested, the main functionality needed at Lending Club is an overall portfolio view. When combined, I would imagine according the the current Lending Club risk score rules, my $400 risk 2 portfolio and my $100 risk 5 portfolio average out to be a risk 2/5 portfolio.

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