Facebook and Credit Scores

Posted by forlackofbetterterms on June 7, 2012 · 1 Comment 

In addition to your name, Social Security number, birthday, and income, you may soon be asked to provide your Facebook, LinkedIn, and other social network info when applying for a loan.

For instance, Lenddo, a startup company, is using this unusual approach and specifically targeting the middle class of developing nations. They hope that maintaining your “online reputation” will pressure repayment.

“Our theory is, we could duplicate the social dynamics of microfinance, but instead do it online,” says CEO Jeff Stewart, referring to the practice of making small cash loans to the world’s poorest people and relying on peer accountability to ensure low default rates.”

From Technologyreview.com

So where does Facebook factor in to all of this?

“The company relies on three classes of algorithms to gauge a person’s likelihood of loan repayment. One validates truthfulness; for example, it would be statistically odd if a supposed engineering student in Bogota had few friends at school or never wrote e-mails containing certain words. Another looks for behavioral and demographic clues that predict the probability of repayment, similar to how online ads are targeted based on Web surfing patterns today.

Lenddo encourages loan applicants to invite their most reliable friends to sign up themselves for a Lenddo score and become part of the user’s “trusted network.” A higher-quality network yields the applicant a higher Lenddo score.”

One of the more interesting aspects of Lenddo’s platform is how they deal with late payments.

“Once a loan is granted, Lenddo will inform a person’s network about a late payment, and friends’ scores will also drop.”

Imagine logging onto Facebook and instead of seeing yet another photo of Susan’s cat, you received a notification saying she hasn’t paid her electric bill.

Not far behind Lenddo comes Schufa, Germany’s largest ratings firm, who recently leaked documents revealing their desire to access social networks “to identify and evaluate opportunities for and threats to the company.”

Naturally lenders want to know more and more about who it is they are lending to so that they can gauge their risk accordingly. But how much is too much? In a world where people are seemingly more concerned about their Facebook privacy than their real life privacy, does this even have a chance of catching on? Would you submit your Facebook info if it meant a lower rate on a loan?

A few of the major concerns with using social media networks as a reference for credit all center around how easy it could become to fraud the system. It’s a lot easier to create a fake Facebook account pretending to be John Snow than it would be to submit a fake photo ID in person along with a fake Social Security number. To me it seems as though Lenddo is asking for trouble. What do you think?

Filed under For Lack of Better Terms