In a world where the wall of privacy between your real life and online presence is rapidly crumbling, the effects may be far reaching - and a little scary. That's the sentiment felt by many people as they found out that their Facebook usage could have an effect on their credit report. Maybe.
By know we should all understand that social media forums like Facebook, Twitter, and Instagram aren't created just to amuse us, but to monetize these free media, companies collect data from their users, which they distribute to all sorts of entities to predict and track consumer decisions. But a few technology are using social media data - like who is on your friend's list - to determine your creditworthiness when applying for a loan.
To be clear, your Facebook friends list, for example, doesn't impact your credit score (not yet, anyway,) but companies have always been eager to find innovative ways of tracking data that corresponds with loan repayment. Now a few techsters have turned their lens onto your social media to see if you're a good candidate to repay.
On the other hand, the factors that determine your FICO credit score are heavily regulated under the Fair Credit Reporting Act. But using social media indicators as a factor in approving direct loans or affecting on creditworthiness is not illegal. But is it reliable? Couldn't someone make a fake account and add a certain demographic of friends (whatever they're looking for) just to look better to these companies? Does this open up another snake pit slithering with online fraudsters? It may not be illegal, but is it an affront to our online privacy?
The good news is that most of the widespread questions still just warrant speculation, because only a few companies are experimenting with the model of Facebook friends or social media usage impacting credit decisions. It's most useful when a void of other factors exists, for new borrowers or those without an established FICO score.
According to CNNMoney, here are just a few of the companies using social network data to lend out money:
• Kreditech: "Kreditech, based in Germany, lends to middle-income individuals and uses 8,000 data points in the loan application process to determine a person’s creditworthiness. Kreditech not only uses social media to inform the lending process, but it also judges how a person fills out the loan application, docking points on applications completed in all caps or with spelling errors.
• Kabbage: Kabbage offers cash advances to small business owners and uses data collected from the borrower’s accounts (such as eBay or PayPal) to judge creditworthiness based on account activity. Business owners can also link their social media accounts to Kabbage to further boost their Kabbage creditworthiness.
• Lenddo: Lenddo determines your creditworthiness based on your Facebook friend’s reliability. That means bad news if you have a friend who was late in paying back a loan to Lenddo; it could harm your chances of getting a Lenddo loan, especially if you interact frequently with that friend. With a quarter million members, Lenddo is operating in several developing countries but not yet in the U.S."
It seems that for now, the vast majority of consumers have nothing to worry about when it comes to social media usage - it won't directly affect their credit score, or even creditworthiness. But look for the trend to continue, and the conversation about privacy, social media, and data usage to evolve.
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Do you think it's ok for companies or lenders to look at your social media use as a factor in giving you a loan? We'd love to hear from you.
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