For about a year, there have been stories floating around that lenders are using social media to find out more about borrowers.
If you have a steady job and a good credit score, you don’t have anything to worry about. But if you’re young, have inadequate credit, work for yourself, or otherwise don’t meet conforming loan requirements, you might watch out for the “Facebook score.”
It’s a new trend called alternative data which is used to help determine what kind of a person you are – the kind who pays back loans or the kind who defaults.
Lenders are working with companies who create predictive modeling and algorithms. They use the data associated with your ties to friends, business associations and the community with the goal of understanding whether or not your interests and attitudes make you more or less of a credit risk.
For example, a Facebook user with lots of ties to the community and nice friends with good jobs who live in nice neighborhoods may be a more desirable applicant than credit scores alone may determine.
LinkedIn profiles tell lenders a lot, such as whether your stated employment is real because your profile is supported by many other people who know you.
Online customer satisfaction is important. If you’re self-employed with an Ebay business or you provide a service that’s rated on Angie’s List, and your customer comments are good, lenders will be more likely to loan you money because you care what the community thinks of you.
Alternative data also looks for other correlations that may not be so obvious – do you use the same slang and language as other borrowers who are in default?
Do you type in all caps or no caps? Either could indicate a character willing to take shortcuts. Do you use ugly or racist language? Your posts and tweets could correlate with creditworthiness.
Alternative data is in its infancy, but it’s getting stronger all the time. Lenders want to curb default rates and reward good customers with lower interest rates.
Currently, lenders are asking permission of consumers to study their online use. Consumer-focused agencies such as the Consumer Financial Protection Bureau are watching how lenders will use social media to inform their credit decisions, without violating privacy rights.