8 Comments

Summary:

Financial institutions are looking beyond FICO scores to Facebook, Twitter and other social media outlets to measure a borrower’s risk profile. That’s not always bad.

credit-cards

Today, our hyper-connected society has resulted in a world where we create our own permanent records beyond high school and college, a life transcript of sorts. For better or worse, we document our triumphs and our sins for all to see. We tell our LinkedIn network that we got promoted. We tweet that we’re leaving one conference panel for the next. And, we blog about how becoming a dad made us more responsible.

Savvy employers are using all that oversharing to help weed out undesirable job candidates. What if that’s just the tip of the iceberg? What if our social sharing becomes an even larger part of how we’re judged? What if banks and credit card companies started to use our online footprints to review our creditworthiness or “risk profile”?

FICO vs. Facebook

Today, the primary way that lenders judge us is by our FICO score. The name FICO actually comes from the company’s original founders: engineer Bill Fair and mathematician Earl Isaac. These original pioneers of “big data” analytics (50 years before we started using the term) were some of Silicon Valley’s earliest entrepreneurs, having met during their stints at the Stanford Research Institute in 1956.

But the FICO score that we know and love today was first introduced in 1989 to help financial institutions determine the likelihood that we’ll repay our debts. It is established by a variety of factors, including our payment history, length of credit history, recent credit inquiries, current debt, and more. Sometimes, those with good credit scores are offered better interest rates or higher credit limits. But, isn’t there more to us than just what is in our financial records?

Screenshot Facebook newsfeed

Why judge us based solely on a FICO score when we want to buy a new car, a house, or apply for a business loan, when a more complete analysis of our creditworthiness could be conducted by reviewing our social footprint? Moreover, creditworthiness can be inferred faster and much cheaper using social footprints, so why not use it more frequently?

Traditional loan paperwork will only ask if we’re married or single, but it won’t tell the bank if we’re a true blue family man that values stability. Social media can. Social media frequently does.

“As financial risk assessment comes into the 21st century, financial institutions cannot ignore the importance of social graph data in illuminating a user’s risk profile or financial responsibility, says James Gutierrez, CEO of Insikt Capital and founder and former CEO of Progreso Financiero. “And the more innovation happens in this space – by pulling in new data sources – the more potential there is to make credit more accessible to historically under-served demographics and communities. The more data, the better for the consumer.”

It’s already here

You know the old adage that we’re judged by the company we keep? Well, that’s never been truer in the age of social media. According to a recent MSN Money article, some financial lending institutions are using Facebook to help determine the creditworthiness of potential borrowers who lack a credit score.

lendoo

Companies such as Lenddo are all too happy to use the payment and default history of our Facebook friends to determine what kind of borrower we might be. Granted, this is just one of the many tools that companies have at their disposal as they evaluate thousands of data points, but five years ago who would have dreamt of a world where the quality of our Facebook friends could be a factor in whether or not we get a car loan?

It doesn’t stop there. Kabbage, a web-based company headquartered in Atlanta, specializes in giving cash advances to small businesses and even investigates a borrower’s online footprint. Specifically, it will review data that includes a person’s eBay order history and the amount of time it took to make payment on a purchase or close a sale. The company has even made a direct correlation between positive social data and lower delinquency rates — to the tune of 20 percent.

One German company, Kreditech, even brings Amazon purchasing and payment history into the mix. Moreover, it will weigh the time of day you are online and incorporates information it attains from Facebook and other online accounts. It also uses GPS data to help in the equation. Long gone are the days of living life in a silo.

The one constant in life is change

We may have started off using social platforms for fun and frivolity, but more and more business are trying to find new ways to use social sharing to their advantage. Everything we share through social channels is, at its heart, data.

For banks to make smarter loans and more money, they’d be wise to better analyze the traits of their applicants. We’re more than a FICO score and an annual income, we’re people with relationships, hobbies, and personalities. And, thanks to social media, we’re all too happy to share the intimate details of our lives for the whole world to see.

Sina Sohangir is the Co-founder and CTO of GraphDive, a social analytics and personalization platform.

  1. As these various companies use the various bits of data that we generate in our digital lives to calculate our creditworthiness, it’s clear that the various federal and state consumer protection laws need to catch up to this change.

    Otherwise there is no means to ensure that these companies are only using fairly collected data, calculated clearly and rationally, in a process that’s open to challenge and appeal.

    Naturally changes to these laws will protect both these companies and their customers. No company wants to strike out into novel and usefully predictive technological realms and leave themselves open to charges of bias and unfair practices.

    Share
  2. The article is written with a tone of pride that this new frontier of judgment is upon us, and the companies doing it obviously think nothing of the dubious nature of their business model. I think I need a shower.

    Share
  3. FICO is going to be relevant as long as lenders look at that score when making lending decisions. As 90% of lending decisions involve the FICO score, I think calling it out of date is a little bit off.

    Share
    1. FICO lacks real-time and gives an incomplete picture. The improvement on precision and recall using big data is impressive.

      Share
      1. I’m not saying that what you say is untrue, but that doesn’t matter from a consumer stand point. Consumers only care about their credit scores because lenders care about them.

        As soon as lenders stop using FICO scores, they’ll be out of date.

        Share
  4. Will they use the same rating system that was used to give all the now defunct and highly penalized “financial institutions” AAA ratings as they sucked the world economy down the bail out hole? “Institutions” Buh wahahahahaaa.

    Share
  5. Chris S. Cornell Monday, November 18, 2013

    Oh, this is great. Rating a person’s credit worthiness based on the credit worthiness of his social media friends. Will people begin to demand a credit check of a potential Facebook friend before they hit the ‘accept’ button — as they try to avoid having their credit score take a hit?

    I just wish people could see this for what it is — another round of marketing aimed largely at “historically under-served demographics and communities.”

    Share
  6. So – what about the 33% of populace that left social networks or never tried it? Does that make us evil or a bad risk? My experian score last checked was 930 according to my credit union report. My social foot print is zero and I try these days to post nothing anywhere knowing it is permanent. I do not feel like i am missing anything. Humans existed without facebook for centuries.

    Perhaps the CEOs of Facebook and Google should be analyzed by their social profile. We all hate them so their FICO scores must be miserable.

    Share

Comments have been disabled for this post