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A Closer Look at a Lending Club Default

I just checked my Lending Club [1] account. And I saw my first charge off. My part of the charge off was only $20, but the loan was for someone doing a $15,000 kitchen and bath remodel.

The part that surprised me, was that it was an A grade loan. However even with an A grade, Jill may be onto something when she filters for loans under $10,000 in How to Earn High Returns with Lending Club [2].

The part I found fascinating is how much information Lending Club [1] provides me with. The loan was taken out in February 2009. They paid on their loan for seven months before a late payment. Once they stopped paying the loan went to a collection agency in December 2009 and was charged off in February 2010. There’s an entire collection log that shows the contact between Lending Club and the borrower over the year.

The most interesting part, take a look at what happened to their credit score:

Obviously, something went terribly wrong and their kitchen and bath remodel wasn’t the only thing that got charged off, as you can see with their credit score plummeting by 250+ points.

Since it was my first charge off, I couldn’t help but feel a little scammed since I invested time reading about the borrowers personal statements and somehow felt connected to their beautiful new kitchen. Then, I wondered if there was even a kitchen and bath remodel.

However, when I come back to the numbers and remind myself that 2.20% of loans were in default when I took on this loan in my Lending Club review [3], charge offs were to be expected.

And let’s be honest, I lost $20. By the looks of their credit score, they’ve lost a lot more. And for that I feel bad for them. Hopefully they’ll recover from this.

I’m amazed at how powerful the connection with the borrower becomes when you have so much information! And since I took advantage of the Lending Club $25 Sign Up Bonus [4] and the rest of my loans are current, I’m still ahead!

Update: For those of you who have asked, here is how I handled the Lending Club charge off on my taxes [5].

Have you had any defaults? Did you see anything interesting in their collection log or credit score time line?