When I was at Prosper's annual conference, CEO Chris Larsen flashed through an interesting slide. It showed a borrow with a grade D credit score having gotten a loan at 1% interest. This is far from the norm. Often someone with a credit score will end with an interest rate over 20%. When we looked deeper into this loan, there was only one lender for the full amount.
I suspect that the lender was a friend or family member. If so, this seems like an interesting way to ensure that debts are paid back. It might seem a little cold to have a third-party police an agreement between friends. However, when I consider the disagreements than can occur when borrowing and lending money, it seems like a good idea.
So here's the part where you might be able to hack a good almost free credit score for yourself. You need to have some spare cash, maybe a thousand dollars and/or a very good friend. Here's my plan. You sign up as a borrower on Prosper and request a loan for the lowest rate possible - 1% or even lower if the system allows it. At the same time, you write a trusted friend a check for the amount of money your request. This friend agrees to bid on, and fund your loan. You use the money loaned to you to pay the loan. All this time, Prosper reports to the credit bureaus your payments are on time, you can also pull out a free credit report score to double check how your plan's doing. You can pay your debt off whenever you like - so in a worst case scenario, you could simply pay off the loans and end the "experiment."
This plan isn't without it's caveats. First, you'll have to pay Prosper's borrowers' fees, which can range from 1-3%. I would keep the money in a high-interest savings account. If you did this, you would end up breaking even or making money on Prosper's fees. Just to be safe, I'd still be cautious and look to do a small transaction - perhaps just borrow one thousand dollars. Since I don't run a credit bureau, I can't say how much this may help your credit score.
I want to re-emphasize what I wrote in the last paragraph. I have no evidence that this will work, but it seems plausible. As with anything, explore and research the idea to determine if it's right for you.
Image Credit: The Weslyn Group
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