If you’re one of those people who accepts a friend request from just about anyone, you might want to consider being more selective in your Facebook (FB) activity. At least if you have any intention of applying for a loan in the future.
As social media has become more pervasive, companies have been quietly maneuvering in the background to collect and analyze that data. That might not be news, but what some companies are doing with that information has caught the public’s attention. The internet has been abuzz ever since word leaked that lenders are using social media connections like Facebook friends to determine a loan applicant’s credit worthiness.
This is a dark side of social media that few had anticipated.
Most of us have come to terms with the fact that our past credit history, employment history, income and assets are going to be used to come up with a number — a credit score — that determines whether we qualify for a loan. Those factors make sense, and we have at least some control over them.
When someone applies for credit, personal factors like religious beliefs, political affiliations or favorite sports teams don’t come into play. The same thing goes for who the person hangs out with, or whether he writes cranky letters to the editor of the local newspaper.
Don’t tell that to companies like Lenddo, which describes itself as helping” the emerging middle class use their social connections to build their creditworthiness and access local financial services.”
Translated, that means someone who wasn’t able to get a loan through a traditional lender can turn to Lenddo where their application will trigger a much different kind of analysis. Lenndo’s underwriting takes your online reputation into consideration, or as the company words it: “how you behave online.”
If you’re an infamous Twitter troll, that’s not going to be good for your prospects. If you say one thing on your application that contradicts something you posted on your LinkedIn (LNKD) profile, you’ll have explaining to do. If you’re friends on Facebook with someone who’s identified as being delinquent in paying back a loan to Lenddo, you’ve got problems — which get bigger if that person is someone Lenddo determines you interact with frequently. Bad habits are likely to rub off, goes the thinking.
On the flip side, having online relationships with Lenddo customers who are in good standing is a positive. If they’re willing to vouch for you, even better. “The more people on the Lenddo platform that will vouch for you, the better we can understand your creditworthiness. A large and strong trusted connections [sic] speaks a great deal about you.”
Lenddo isn’t the only one mining your social media presence as part of a loan application. Movenbank checks a potential borrower’s influence, determining how many Facebook friends, Twitter followers or LinkedIn connections they have. Kreditech takes it even further, basing lending decisions on 8,000 datapoints including social media activity, online purchases and even the borrower’s GPS locations.
Better hope no-one gave you one-star on eBay (EBAY).
This comes on top of weeks of hand-wringing about PRISM and the NSA having access to servers (and user data) from technology giants including Google (GOOG), Apple (AAPL) and Yahoo (YHOO). Of course, the U.S. government is hardly alone in monitoring online activity. Facebook and Twitter have revealed stats showing the number of government requests they’ve received for access to their users data.
Of course government monitoring is one thing — perhaps a necessary evil, depending on your point of view — but the idea of businesses mining this data is another thing altogether. Using your Facebook “likes” to serve up targeted ads is annoying. Having insurance adjusters scan Facebook or Instagram to discover the back injury that prevents you from working isn’t stopping you from cliff diving in Acapulco … well, that’s getting a little intrusive.
But when the high-school classmate you mindlessly friended ends up costing you a loan application, things are being taken to extremes.
Who makes the call that an online associate is a risk? Who decides the difference between a frequent and personal interaction versus casual commenting on posts? These points are ripe for discrimination, profiling and all sorts of questionable practices — many of which will not be transparent to the applicant, making us all even more paranoid about our social media associations.
If social media mining works for the micro-lenders, it may only be a matter of time before the big credit bureaus like Equifax (EFX) follow suit and even traditional banks ask for your Twitter handle on a loan application.
Un-friending people who might have a dicey past (or present) could be a result. Even trash talking Halo opponents on Xbox Live could become risky. In the other extreme, gaming the system by paying for robot Twitter followers could move from being a tactic employed by attention-craving celebrities to being used to game a mortgage application. Online reputation management will become big business.
It’s enough to make someone give up social media and online shopping altogether, turn off the location tracking on their smartphone and start using Google Chrome’s “Incognito” mode along with a proxy server for all web interactions.
Might as well strap on a tinfoil hat too, just to make sure.
As of this writing, Brad Moon didn’t own any securities mentioned here.