Does peer to peer (P2P) lending affect my credit score?

Peer to peer lending, also known as P2P lending or peer to peer financing, has grown in the financial landscape in the last ten years. But it’s still a fairly niche option for individuals and businesses looking to lend and borrow money. You might be considering it yourself. But does peer to peer lending affect credit scores? Loqbox has you covered.

More and more people and companies have turned to peer to peer lending platforms for flexible and accessible loans, which can seem more attractive than traditional options. But peer to peer credit does carry risk. Lenders can suffer from borrower defaults and borrowers can damage their credit score, just like with traditional loans. 

Peer to peer lending: What is it?

Online peer to peer lending platforms match individuals and businesses to lend and borrow money. It’s a relatively new option that emerged from 2005 in the UK. Its popularity comes from more flexible and accessible borrowing options including options for people with lower credit scores. Lenders can also benefit from higher interest rates, meaning they earn more money for lending money. 

Peer to peer lending platforms can provide fast access to funds, often with more flexibility. But they’re still regulated by the Financial Conduct Authority (FCA). P2P loan applications usually work in the same way as traditional lending.

Peer to peer lending platforms check your credit history with Credit Reference Agencies (CRAs) to assess your creditworthiness. Your credit history is a record of how you have managed borrowing in the past. If you’re accepted, your application will be matched to relevant P2P lenders. Note that you may have to pay additional fees as well as interest on the loan.

Does peer to peer lending affect my credit score?

Yes, while peer to peer lending might offer up some alternative funding options, which may seem attractive, it’s important that you’re fully aware of P2P credit risks. While P2P loans are alternative financing options, peer to peer lending appears on your credit report and has a real impact on your credit score.

Peer to peer lending platforms will typically carry out a soft credit search when you apply for a loan. You can read more about hard vs soft credit checks here. Soft credit searches don't directly impact your credit score. However, once you have been accepted, activity on your P2P loan will be reported on your credit report.

It’s important to note that while some peer to peer lending platforms might offer loans with no credit check, that doesn’t mean that they won’t affect your credit score. Making your payments in full and on time can have a positive effect on your credit score, just like any other loan.  

But bear in mind that missed or late payments and defaults can potentially hurt your credit score. This can then make it less likely that your credit applications will be accepted in future, and you might be charged higher interest rates. 

If you struggle with repayments, P2P loans often have less flexibility and support than traditional banks. This could result in being passed over to debt collection agencies more quickly. Additionally, because of the looser structure of your loan, you may be tempted to borrow more than you need or can afford.

Can you get peer to peer loans with no credit check?

No, not in general. Most peer to peer loan providers will run a “soft credit check”. While that avoids the need for a hard credit check, peer to peer loans can still affect your credit score.  

So what credit score will get you accepted for peer to peer lending platforms? Well, there isn’t a simple answer, unfortunately. But we’ll try our best to help you get to grips with how P2P providers make decisions. 

Peer to peer lending platforms  have their own, unique criteria for lending. Some cater to borrowers with a limited credit history or thin credit file. Others may be more strict. But either way, once you’ve been accepted for your loan, your activity on it will be reported to the UK’s main Credit Reference Agencies: Experian, Equifax, and TransUnion.

While there can be more lenient criteria for peer to peer lending, credit scores can still affect how much you’re able to borrow. To protect their investors, P2P platforms often offer fewer options to people with low credit scores. It’s important to do your research when applying for a P2P loan. Find a platform and lender that best suits your credit rating and your money goals.

How to grow my peer to peer lending credit score?

If you’re applying for a peer to peer loan, but you’re worried about your credit score, we can help to give it a boost. For £2.50 per week, get started with a full Loqbox membership. Grow your score by up to 300 points in 3 months when you use all of our tools together. No fees, no credit checks, no fuss. We just help your credit score grow. 

Improvements to your credit score are not guaranteed. 

Is peer to peer lending a good idea for me?

It might be, but you need to be fully aware of what you’re getting into. Be honest with yourself about what you can afford to borrow and how likely it is that you can pay it back. This is a good rule of thumb even with more traditional forms of borrowing.

Look at the monthly payments. Are they reasonable against your income and other financial obligations? Check the interest rates against other options available to you. Could there be more manageable loan terms out there? 

‍Remember, peer to peer lending can impact your credit score, both positively and negatively. The difference will be, just as with a traditional loan, how you manage your finances and repayments. What’s important is maintaining a healthy credit report as this can impact on your future financial options and goals.