Credit question

[MJtwelve]

Hello, I am new to this forum..
My purpose: trying to build up some savings with money I plan to use at some point, maybe a year or so though not urgently, so I am looking for some short term savings or "income" investment I think it's called.


I have a few questions, 1000 apologies if this isn't the right place to post this..

1. I know that your credit utilization affects your credit score.. what is the best margin to stay under to help improve your score? i.e. 30% utilization of credit, etc.. and I assume this is across all forms of credit combined right? i.e. if you have two credit cards at $500 limit each then your total credit is $1000, use about 30% or so of that and you will improve your credit score?


2. I've heard a little about P2P lending, which I am interested in doing, but I'm a bit nervous about this idea.. I was wondering if someone here had some good knowledge regarding this subject or could point me in the right direction or answer a few questions?
One thing that I am concerned is that as I would be lending out money unsecured.. and since I'm not an FI.. what is there really to "motivate" a borrower to repay the money at the end of the loan? i feel it's almost 100% risk because, to my understanding, there is really no recourse I have, unless I'm missing something?
I feel I am because if the risk was really that great I feel returns would be a lot higher than what they currently advertise? (I hear some boast about a 10% ROI) I have some other questions but I'll save that for later if I'm posting this in the wrong place.


Thanks again, and I apologize if this is in the incorrect place.

[sblatner]

Regarding P2P lending, I have been lending at Lending Club for 2 years. I have a return of 6.03% which I'm very happy with. I try to focus on low value loans that aren't too risky. I do dabble in higher interest loans depending on the circumstances. I have had some defaults but as a percentage of my total loans, they are a small amount. If someone stops paying on their loan, Lending Club does follow up and tries to get payment. They also engage a collection agency when necessary. They also work with borrowers and have them pay on a payment plan if that is an option.

Even with the defaults in my account, I'm still making 6.03%. The first time someone defaulted, I took it personally but have come to realize, even with the defaults, my returns are better than any bank account and probably most investment accounts.

I started out in Lending Club by investing $300 a month for four months. After a year, I decided I liked it and then added more funds. I would recommend this to you...try it out to see how it works.

[MJtwelve]

Thank you for your response!

Unfortunately, being from Ohio I can't sign up for lending club... odd.

[SeanH]

If you are going to do Lending Club/Prosper you should recognize it for what it is - "fun" dabbling. If the returns beat out bank interest - swell, but your bank money had no risk. If you are truly attempting to generate income from Lending Club (I don't think you are) you should know that I don't believe there are any tax advantages to it. When I looked into it, it appeared that I would be taxed against any earnings as if they were regular income rather than an investment. Additionally, I read some articles concerning academics who investigated P2P lenders and determined that its pretty hard to hedge/diversify and that based on the in general small amounts in most accounts that no one is doing it.