TOO CURIOUS: AN ANALYSIS OF HOW RECENT TRADE LINE INQUIRES IMPACT CHARGE OFF PROBABILITY IN THE P2P MARKET

Abstract

This paper looks to see the relationship between borrower’s recently inquired trade lines and the probability that their loans end in a charge off. It does so by using data from the P2P lending site Lending Club, and conducts tests on the entire loan database with subsequent tests on different loan subsections. From the tests it finds that the number of inquiries in the last 6 months increases the probability that a loan is charged off by around 0.4% per inquiry. A ratio of recent inquiries to total lines of credit a borrower has ever had is also created, and shows how inquiries can represent a shift in the riskiness a borrower possesses. Ultimately, this paper sheds light on how outside data can be used to improve the current, popular underwriting techniques.