Borrower Stated Occupation
Consumers tend to earn the majority of their income through employment. Therefore, when assessing the risk and ability to pay of a borrower on a marketplace loan, it may be worthwhile to understand the borrower’s occupation and what it tells us about the person’s financial health and creditworthiness.
Common Occupations Among Borrowers
Fortunately, the datasets made available by LendingClub and Prosper both contain information on the borrower’s stated occupation. In looking at the Prosper data, it appears that occupations are grouped into a fixed set of standard categories. Below, we can see the 66 categories of occupation for applications since January of 2014.
LendingClub, on the other hand, appears to allow a free-form description of occupation, and in fact, we’ve seen over thirty-eight thousand unique descriptions in 2014 alone! This type of data is difficult to visualize in its entirety, so instead, let’s look just at some of the most common words used in LendingClub occupation descriptions.
In order to do this, we converted all letters to lowercase and used a language processing library to remove common English “stopwords” and punctuation. Below are the 25 most commonly used words in LendingClub occupation descriptions:
Occupations By Credit Grade & Income
Let’s explore whether or not the distribution of credit grades varies by the borrower’s stated occupation. In the graph below, we show the distribution of loans by credit grade for stated occupations with over 750 observations. Remarkably, there appears to be very little variance, though Computer Programmer and Nurse do seem to have the lowest-risk grade weighting, albeit by a very small margin.
Next, let’s explore how income may vary by stated occupation. The graph below shows a “box and whiskers” plot of the distribution of income for each major occupation, with the center bar showing the median value, and the left and right edges showing the 25th and 75th percentile, respectively. In the background is a constellation of points, each of which represents a distinct loan. This chart does show significant differentiation in income by occupation, with Executive having the highest income by a wide margin, followed by Computer Programmers. The lowest income distributions are seen among Clerical, Administrative Assistant, and Sales-Retail.
Performance by Occupation
Of course, now that we’ve explored some of the basic characteristics of borrowers with various occupations, we can see how delinquency behavior may vary by occupation as well. In the graph below, we see the cumulative incidence of 30+ day delinquency for Prosper loans issued between Q3 2012 and Q2 2013. On this set of metrics, some occupations do tend to fare better than others. Computer programmers, professionals, executives, and accountants seem to have lower rates of delinquency, whereas administrative assistants and commissioned salespeople tend to go delinquent more frequently.
Work tends to have a major impact on peoples’ lives, and as such, we would expect that a person’s occupation would tell us something important about his or her ability to repay a loan. As we have seen from the above analyses, there are certain trends in the data that are associated with stated occupation. Of course, as with any statistic, we must be careful not to overgeneralize. In the first 6 months of 2014, 1,358 Prosper borrowers described their occupation as “Clerical”, with incomes ranging from $12,500 to $180,000. 2,083 described their occupation as “Executive”, with incomes ranging from $23,000 to $1.4MM. Clearly, within any occupation, there is a wide degree of variance, and while this information is potentially very useful, it should be considered by investors in conjunction with other relevant borrower data.