by Rebecca Mikulin

Created on: December 23, 2009

What does your credit score look like? Since the inner workings of a credit score is a carefully-guarded secret obscured by lots of inaccurate information produced by the credit agencies themselves, many people discover – upon applying for a loan – that they have extremely poor credit. How can you have no late payments, no delinquencies, and no defaults and still have a bad score? Why is it that those payments on old delinquencies only bring your credit score DOWN? The truth is, credit scores are made to benefit the credit companies and encourage more use of credit cards. Great, so we’ll just stop using them…that is, until you need a loan for that house, car, family emergency, move, or any other big-ticket item.

The bank refused your loan because of bad credit? No problem! Peer-to-peer lending may often lead to higher interest rates (but then again, it might not), but most of the lenders will never make a decision based solely on your credit score. While lenders often know a letter grade for a borrower that covers a certain range of credit scores, this isn’t even the most important piece of information available, much less the deciding factor. Lenders can see your history of delinquencies, open credit lines, credit-to-debt ratio, yearly income, the time at your current job and in what field you work.

Are you being turned down for credit because you lost your job for a couple of months five years ago and got behind on bills, your kid fell off the playground equipment and broke his/her arm when you didn’t have health insurance, or your ex went on a spiteful spending spree with your credit card? Banks don’t care what factors influence your credit score, but peer-to-peer lenders do! You are given the chance to explain your situation and any negative points on your credit report, and then each individual lender decides whether or not the risk is acceptable.

Let’s look at it from the other side, maybe you have great credit. It’s absolutely spotless, couldn’t be better, and banks are chomping at the bit to lend to you – but you need a large, uncollateralized loan. Maybe your son or daughter is going off to college and you want to send them with some starter money, maybe a friend’s car breaks down and you’d like to help, or maybe your dog had to have emergency veterinary care. In each of these situations you have nothing to secure a loan. Sure, you could put your own car up for collateral,

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