Is Social Media the Next Big Credit Score Factor?

If you think your social media posts, photos, and activities are only interesting to your family and friends -- think again. It’s entirely possible your boss or future boss is taking a look at your public social profile to know more about your personality and character. Marketers, on the other hand, would gladly want to know what you like and dislike about products and services to better serve your needs and wants.

If social media content proves to be useful in background checks and marketing, can it also be used for checking credit worthiness?

With the massive amount of information posted online – 58 million average tweets per day, 4.5 billion Facebook likes, and 40 million Instagram photos - lenders may find it hard to ignore social media. It’s a vast new frontier waiting to be tamed, but how?

Start-up lenders like Neo Finance, Lendo, and Affirm are defying the traditional credit score model used by the 3 big credit bureaus -- Equifax, Experian, and TransUnion. Instead of relying mainly on traditional credit scores, they can sometimes consider more social factors of the applicant to gauge their credit worthiness.
Critics would argue that this type of system is vulnerable to fraud, while proponents would say that it could open up a lot of opportunities, especially for people with vague or less than great credit histories.

So, what are the pros and cons of using social media to estimate ones’ credit worthiness?

Pros:

• Authentic social media profiles are hard to fake – everyone can register for more than one profile per social network. All you need are different email addresses. However, the authenticity of a social profile is easy to determine with one look. Immediately, you can recognize the genuine profile from the feel of items in the timeline and the connections that the account’s owner has built over the years. Con artists will be hard-pressed to replicate an authentic profile because natural social media behavior takes time, intellectual and emotional investments.

• Quality over quantity – Traditional credit scores rely on cold and hard figures. The nuances of personality and character are not considered when evaluating loans and interest rates. The result is that deserving businesses and individuals are sometimes denied loans because their numbers didn’t look right. In considering the social content, a lender could see the human element that could explain causes of low credit scores such as a sudden sickness or job layoffs.

Cons:

• Bias issue – A traditional credit report is blind to race, religion, gender, status, and other personal background that may result in unfair profiling. It upholds the principles of the Equal Credit Opportunity Act that prevents discrimination against loan applicants.

In social media, a credit approver can sometimes plainly see information such as race, age, sexual preference. This can open the credit applicant to stereotyping and prejudice that they could have avoided with regular credit profiling.

• Privacy issues-With the public growing increasingly wary about online privacy, not every creditor or bank has taken the leap of faith with using data on these websites for credit assessment. While most major banks use social media for marketing and outreach, they are often discreet when it comes to their stances on viewing the information of their target customers. As such, not every creditor is buying in to the social media trend. This makes social media still a vastly unexplored and unproven credit scoring aspect.

While traditional credit bureaus are still not incorporating social media in their algorithms, it could really just be a matter of time. In fact, it has been reported that Equifax is testing how social media sites can help prevent financial fraud.

Maybe it’s time you take a second look at how you use your social media. And be sure to think twice before posting those photos of you from college that you wouldn’t even want your grandmother to see!