How Much of Peer-to-Peer Lending Involves Credit Score?

How It Works

With peer-to-peer lending, you receive a loan from a collection of people instead of a financial institution. This means that you can have any number of people funding your loan. For example, if you need $4,000 you may have 100 people who lend $25, two people who lend $250, and one person who lends $1,000.

Qualifying Criteria

A total of three primary factors make up the criteria for peer-to-peer lending. Those things are your credit score, the amount you request and the purpose of your request. Of these three things, the credit score is the most important for two reasons. It determines both your interest rate and your attractiveness to the peer lenders.

What Your Credit Score Means For You

A high credit score qualifies you for the best interest rates when it comes to peer-to-peer lending. But it also means the lowest return for the peer lenders, which is not very attractive. However, it also means that you are most likely to actually repay the loan, which makes you a safe investment. The lower your credit score, the more attractive you are to peer lenders in terms of a greater return. Of course, this also means you get a higher interest rate because you are perceived as high risk.

Other Factors

When you apply for a loan through a peer-to-peer lending site, it helps to give as much of your personal information as possible. This is especially true if you have a low credit score and are asking for a large amount of money. Information that you can share includes things such as how you earn your money and your plan for paying back the loan. Potential lenders can also ask you questions before they decide to lend to you. These questions, and your answers, are publicly displayed for other potential lenders to see. Answering these questions honestly and politely can help get your loan funded.