How Your Friends List Can Impact Your Ability To Get Credit

Have you ever thought who you choose as a Twitter or Facebook friend could have an impact on your ability to get a loan for a home or new car? Well, it might.

Lenders are testing the waters on using social networks and other data you may have never even considered to determine whether or not to loan someone money. Lenders traditionally use your credit information along with income information (verification of income from W2's and pay stubs), savings information (like checking and savings account statements) and tax returns to determine an applicant’s risk. 


But, one lending institution in Germany has found that social network connections can play a part in indicating one’s credit worthiness.   

These companies believe that humans are pretty good at determining how trustworthy a person is. Assessing peoples’ social network connections can give the company insight into whether or not that person will pay their own bills on time. What does that mean? If you’re friends with someone who owes that lender money, you may have a harder time getting a loan yourself (especially if that person is someone you interact with frequently). 

In addition to your social networks, one company in Germany is also pulling data from applicants’ accounts and from the manner in which a customer completes an online loan application. For example, the amount of time spent reading information about the loan and whether or not you complete the application from your work or home computer. Or whether you use all capitalized letters (or all lowercase letters) are all taken into account to paint a more complete picture of an applicant. 

One lender that makes cash advances to small businesses takes into account the business’ presence on social media sites on the principle that a business that pays attention to Facebook and Twitter as a way to handle customer service is more likely to be responsible in other areas of their business, including accounting. 

While these types of screening activities may be less frequent at this time (the vast majority of lenders are not yet checking up on you on Facebook when you apply for a loan), it may represent the future of lending requirements.  Lenders may start looking at data outside of your credit report to assess your creditworthiness. This could be good news for people with no credit or with low credit scores because of a short credit history

The downside of course is that our social networking activities are not entirely indicative of our behavior as consumers or borrowers. We may all be punished by being Facebook friends with friends or family members who aren't financially responsible (we all have friends and family who aren't always at the top of their financial game).  People could also easily clean up their friend lists to appear more clean-cut, but may have a hard time doing the same to their credit score

Either way, this can also serve as a good reminder to be careful about what you post on your social networks. Your online activities are already being watched by potential employers-- it wouldn't be much of a stretch for lenders to start doing the same in the near future.