Can Social Media Hurt Your Credit?
It may sound ridiculous, but your social media profiles could make or break a future credit application.
Some lenders have begun using a controversial new methodology for approving or denying loan applications that includes an algorithm to take into account information about your social media networks.
Although this practice is not yet widely-known or widely-used, industry experts say it’s likely to grow in the next three to five years. It begs two questions for most consumers:
How?
The institutions currently using a social media algorithm are asking consumers to share social media account and login information as part of the credit application process. For consumers who choose to go through these lenders, it means the lender has access to everything in their social media accounts, not simply what’s posted publicly. This includes all posts, photos, group associations and friend lists. The consumer’s information gets plugged into the algorithm – which is highly secretive – and it’s meant to provide the lender with an estimation of how likely a person is to repay their debts.
Why?
These institutions believe they can assess a consumer’s creditworthiness primarily by evaluating who they associate with. Essentially, they’re hedging their bets by gauging whether you’re connected to upstanding citizens who pay their bills. If you are, that association reflects positively in the algorithm. A secondary benefit to the lenders is that they retain the right to use the login information to make sure a consumer pays their bills on time. If they don’t, the lender could potentially post about personal debts on the consumer’s own accounts as a way to motivate payments.
Although this practice may be growing, it’s limited enough at the present moment that consumers who don’t wish to provide social media logins can simply choose to go through another lender instead. If the practice becomes mainstream, however, it’s likely that government intervention will provide the ability to refuse to provide social media information.
Image via Flickr/jasonhowie