Those looking for loan approval might want to consider purging their Facebook list of unsavory connections.
The days of family guarantors or using relationships with banks to secure a loan are long gone. Instead, a loan application goes through computer systems which determine credit histories and the risk associated with loaning the applicant money. Credit card bills, court county judgments and direct debits all contribute to 'Yes' or 'No' for a loan -- but social media profiles now play a part too.
A number of tech startups and financial lending firms are exploring the relationship between a loan applicant's online connections and how much of a risk the applicant is. By mining social media data, those without credit scores may have a shot at securing a loan if they talk with "trustworthy" people -- but if they frequently interact with others who have a poor credit history, their loan chances may be scuppered.
Jeff Stewart, CEO of one such company, Lenddo, says:
"It turns out humans are really good at knowing who is trustworthy and reliable in their community. What's new is that we're now able to measure through massive computing power."
German company Kreditech also uses social media as a factor in loan approval. In addition to researching Facebook, Amazon and eBay accounts, the firm also scores an applicant based on required form submissions. If directions are followed, applicants receive additional points. Using all caps or no caps is penalized with point loss. The company may also use applicant location and place of work to determine trustworthiness.
Kreditech says that all of this information taken together can paint an accurate picture of an applicant and the likelihood of repayment.
Relying on social media as a factor, however, comes with its own set of risks. Clued-up individuals have control over their profiles -- and so can manipulate public posts and friend lists to game the system and make themselves seem less risky. The same cannot be said for factual data gleaned from credit reports.
Image credit: Flickr
This post was originally published on Smartplanet.com