Pretty much everyone is using at least one of the social network sites like Facebook, LinkedIn, Twitter, Pinterest or Instagram. We connect with friends, family and colleagues using these sites. Some connections we haven’t even met in person. What if these connections were used to determine our credit scores? It’s not happening on a large scale yet, but it’s starting to happen in a few places.
Every adult has a credit score, whether they know it or not. FICO is the most well known credit score with scores rating from 300 to 850. A person with a FICO score above 750 is considered excellent and will receive the lowest interest rates when applying for car loans, mortgages and credit cards. A FICO score below 600 is in the poor credit category. These folks will pay the highest interest rates if approved for credit.
For younger adults, it’s always been difficult to start building a credit history when no one will lend to them because they don’t have a credit history. It’s definitely a catch-22. It’s also an area in the lending industry a few new companies are focusing to serve. And they plan to use data from social network sites to determine a person’s creditworthiness.
One company called Neo Finance Inc. offers car loans to people without long credit histories. They use income and social data to determine to lend or not. For instance, Neo analyzes a person’s LinkedIn profile for employment history, the number and quality of connections and the job titles of those connections.
Another company called Affirm Inc. allows people to use their smartphones to pay for online purchases and avoid typing in credit card information. Consumers pay back Affirm within 30 days without being charged fees or interest. Affirm uses your Gmail or Facebook account to verify your identity. From there, they can use publicly available data to determine your creditworthiness.
Lenddo is a microfinance company that lends to people in Colombia and the Philippines with aspirations to grow into other countries. They analyze data from a borrower’s social networking profiles such as education, job history, who they are friends with and how many followers they have.
A potential borrower improves their creditworthiness by having other Lenddo users, called Trusted Connections, vouch for them. If you default on your loan, then your Trusted Connections will have their score negatively impacted as well. That’s peer-pressure to pay your bills on time!
This is still a very new concept to use social network information to determine a person’s creditworthiness and nothing to be concerned about right now. However, it’s interesting to be aware of it. In the meantime, be sure to know the people you connect with on social networks. Those connections, friends and followers might someday help determine if you get a loan or not.
Steve Doster is a Certified Financial Planner™ professional providing commission-free financial advice for do-it-yourself investors. You can reach Steve at Doster Financial Planning by phone 619-688-1192 or email steve@dosterfinancialplanning.com. You can also follow Steve on Facebook, Linked In, Twitter, or blog to get more personal finance advice and tips.
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Very interesting. I wonder how long before they start looking at your Facebook friends and posting history to get a better feel for a person’s ‘reliability’.
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