Good Credit can now look back on around € 60 million in lending, over 7,000 loans paid out and almost five years of experience in brokering loans between individuals. We have now taken advantage of the experience gained from these experiences to revise and improve the credit rating system for borrowers (borrower scoring). From the 13th of January on, we will be able to offer our customers even more precise and fair pricing via our marketplace.
What advantages does an improved credit check and how does the new differ from the old scorecard?
The credit check is an integral part of our marketplace and an important accomplishment by Good Credit for our clients. The purpose of the credit check is to assess the credit default risk for investors and to protect borrowers from over-indebtedness.
The creditworthiness of potential borrowers has been determined by Good Credit since the start of the marketplace in March 2007 with the help of Bank. With great success: With the help of a standard Bank score, investors at Good Credit were always able to make good investment decisions and achieve attractive returns.
In close cooperation with the Bank we improved the scorecard. It now also takes into account the data and experience of nearly five years of Good Credit’s lending business. From now on, for example, the individual income situation of the borrower is used to assess his personal creditworthiness. Specifically, the refinement of the score has risen by more than 25% as a result of the revision.
The usual credit rating classes do not change due to the innovation. The new score card divides the borrowers into the familiar classes A to M, with Good Credit still only admitted to the A to H classes. Also, there are no changes for the pool compensation. Existing and future investments are hedged via the credit rating-dependent pools.
Take advantage of the improved scorecard for borrowers
For borrowers, a more accurate assessment of your credit rating has a positive effect. First, the more precise risk assessment better reflects the repayment probability of borrowers, leading to more accurate and fair pricing in the marketplace . Secondly, additional borrowers can be admitted to the marketplace , whose good credit rating only becomes visible when additional data is taken into account. And thirdly, a more accurate risk assessment helps borrowers better protect against over-indebtedness .
Take advantage of the improved scorecard for investors
Better risk assessment
The credit rating of borrowers allows investors in Good Credit to assess the credit risk of a loan and thus serves as an important basis for your investment decision. Through the improved scorecard, investors can more accurately assess the risk of default and hence the return on credit projects and thus make better investment decisions.
Increase expected returns
With the introduction of the new scorecard, the risk premiums for the individual rating classes will also be adjusted. The most recent adjustment to the risk premiums was in June 2010. The risk premium is one of the key risk ratios on the Good Credit Marketplace. It indicates the amount of the expected return reduction through own credit losses or losses in the investor pools.
The improved scorecard (more than 25% difference in severity) results in lower risk premiums. With the same nominal interest rates, therefore, higher yields are to be expected in all credit rating categories.
Specifically, the current average interest rates are subject to the following risk premiums:
The new risk expectations will automatically be included in the risk premiums from Friday. What does this mean for investors? For existing investments, the updated expected return indicator in your “My Good Credit” is slightly increased as pending payments take into account the new premiums. For future investments, the risk premiums in the yield calculator, in the investment wizard, in the bid assistant and in Good Credit professional as well as in the bidding process are automatically updated. Based on the new score, a better return and risk control on the marketplace becomes possible.
Please note that the risk premium and the expected return are forecasts based on data from Bank and Good Credit GmbH. As this is an estimate, Good Credit can not guarantee or assume that the forecast risk premium and expected return will actually be that high. They can be higher or lower.
We are pleased to have created a true innovation with the new scorecard: the first score specifically for an online credit marketplace. In this way, we offer our customers an even more effective marketplace.