by Linda Sharps
Your Facebook profile reveals plenty of data about you -- what you look like, where you live, what your interests and hobbies are, and maybe even your sexual orientation and political leanings. That's a lot of personal information available just from one social media platform, and according to some financial lending companies, there's something else that can be determined from your Facebook account: your credit risk.
It sounds almost too creepy to be true, but a number of tech startups are now using social data to determine the risk of providing loans. While traditional lenders rely heavily on credit scores like FICO, new companies are looking at Facebook and other social networks to decide whether applicants can be trusted to pay back borrowed money.
Lenddo is one company that says it "helps members engage their social network to establish credibility and gain easy access to financial services." The company uses its own capital to provide applicants with loans that can be can be used for education, medical emergencies, home improvement, and "other life-improving purposes," and they believe that a person's social connections are a strong indicator of their creditworthiness.
According to Lenddo's CEO,
It turns out humans are really good at knowing who is trustworthy and reliable in their community. What's new is that we're now able to measure through massive computing power.
That "massive computing power" can figure out whether you're Facebook friends with someone who was late paying back a Lenddo loan -- and your score drops even lower if that person is someone you frequently interact with. Can you even imagine? I mean, how is that a reliable way of determining whether or not you're a good bet for a lender? Does being "trustworthy and reliable" always equate to making payments on time? How crappy would it be if suspecting that a friend might be a little delinquent in repaying their loan started influencing your decision to connect with them online?
The bottom line is that for most people who are looking for a loan, lenders will base their decision on the data included in a FICO score: your payment history, the amounts you've owed, the length of your credit history, and the types of credit you've used.
For people without credit history, however, making reasonably priced capital accessible is a great thing -- and I'm sure most applicants would be happy to have their social data and online behavior evaluated if it meant getting a much-needed loan. I can't help but think of this as a disturbing trend, though. What if there comes a day when everyone's credit score is affected by their social network? Will we eventually have to unfriend people if we think they're having trouble paying the bills? Honestly, I don't think online reputations really translate to real-world financial trustworthiness in any meaningful way, and it seems dangerous to start making that assumption.
What do you think of the trend of using social data to determine creditworthiness?