It might be time to whittle down your friends and followers on Facebook and Twitter. Not just because they continually post “news” articles from The Daily Mash or because they upload twelve pictures of their newborn baby every day, but because they could be negatively affecting your credit scores and credit worthiness. In a society where online data is abundant and easy to obtain, creditors are starting to use this information to their advantage.
Lenddo, a ’trust-based lender,' is very open regarding their policy of using social media data as a factor in loan applications. In an article by Fortune Magazine, the author describes Lenddo as “a financial technology startup that calculates the risk of making loans to people…based on social data.” Chief executive of Lenddo, Jeff Stewart, said in a CNN interview that “Humans are really good at knowing who is trustworthy and reliable in their community.“ It is this mindset that allows companies like Lenddo to use their applicant’s online friends to calculate potential risks.
However, social media isn’t the only piece of the technological puzzle that lenders are using to determine credit worthiness. Kreditech, a European company that labels itself as a “big data infrastructure that allows for credit bureau independent acquisition, identification, scoring and retention management in consumer lending,” boast that it uses 15,000 data points to help creditors process loan applications.
Kreditech uses data from Facebook, eBay, and Amazon. It also tracks your online history to see how much time a borrower spends reading, where your computer is located, where you work, and where you live.
Wonga, a short-term, online lender, tracks website information on its applicants. It obtains internet history and uses that information to determine eligibility. An example of this is that if a borrower spends time on their site researching loan sizes, interest rates, and other important credit information, they are more likely to be accepted than someone who immediately tried to apply for the biggest possible loan amount.
There are credit experts, like John Ulzheimer of CreditSesame, that believe social media data isn’t “necessarily indicative of whether the borrower will pay back a loan on time.” That being said, he did state that they are “incredibly predictive of risk.”
As you prepare for the large purchases in your life, it appears as if it isn’t enough to just obtain a free credit report—which you should take the opportunity to do now, http://www.creditexpert.co.uk/credit-score.aspx—but you must now associate with those that are financially responsible, purging your friend’s list of deadbeats and also paying attention to your own social media updates and uploads.
The following list, provided by The Telegraph, tells you what sort of information these new big data lenders can track or gather.
- Check how active or “influential” you are on Facebook, Twitter and other social media sites and use this information in lending decisions
- Check whether any of your social media contacts are also customers - and see whether they have had repayment problems
- Lenders could make further decisions based on how much contact you had with any one person who, say, was in arrears
- Monitor how you interact with their own website (ie how much information you browsed) before making a lending decision
- Ask you to get your Facebook friends or other contacts to vouch that you are a good risk
While it is important to take this information into account when trying to improve your credit score, the most important thing you can do is: ensure that your payments are on time, that your credit card utilization is low, that credit inquiries are to a minimum, and that you have no derogatory marks on your credit reports.
