How Deadbeat Facebook Friends and Using ALL-CAPS Can Lower Your Credit Score 362
McGruber writes "CNN has the news that some financial lending companies claim that Facebook social connections can be a good indicator of a person's creditworthiness. One company determines if you are friends with someone who was late paying back a loan; if so, that is bad news for you. It is even worse news if the delinquent friend is someone you frequently interact with. Another company gathers information from the manner in which a customer fills out the online loan application. The chances of getting a loan improve if you spend time reading information about the loan on their website. Conversely, if you fill out the application typing in all-caps (or with no caps), you are knocked down a couple pegs in that company's eyes. A third lender requires that small business borrowers grant them access to the borrowers' PayPal, eBay and other online payment accounts (what could possibly go wrong with that?), thereby disclosing real-time sales and delivery information."
Re:Kind of a warning sign actually (Score:5, Informative)
There was a much better article [economist.com] about this in the Economist a few months back. The banks don't ask you for a list of your Facebook friends. It doesn't work like that. They get the information as part of your score from credit agencies. You will never even know it is happening. But I don't see why this is worse than other things they consider, like your zipcode or marital status. You are judged by the company you keep. Deal with it.
The devil, as always, is in the details (Score:5, Informative)
The summary leaves out that the companies described aren't the major financial institutions in the US. The one who checks to see if you're friends with someone who defaulted on a loan from the same lender? Lenddo, which makes loans in the Phillippes, Colombia, and Mexico. The one who LOOKS FOR ALL CAPS? Kreditech in Germany, which uses that and "up to 8,000 data points" when assessing the loan (though I can't argue with that; as someone sitting down with a banker in person and YELLING THAT THEY WANT A LOAN is probably not a reliable borrower).
As for whether lenders should just use FICO, if FICO is available? It's reliable and predictive, and more difficult to game, but in an emerging market where your prospective borrowers don't have FICO history, what do you do to suss out whether a borrower is likely to default or not?
Re:I think the wider story here is (Score:4, Informative)
Re:Kind of a warning sign actually (Score:5, Informative)
The problem is, how do you know whether the bank even uses that as a metric?
Institutions wouldn’t get this information straight from Facebook but would instead use one of the many smaller credit reporting agencies and if they make a negative decision based on this, they are required by the Fair Credit Reporting Act to disclose this to you. If that happens, the CRA is then required to provide you a copy of the report provided to the given company. They could try to lie and make up some other excuse but they wouldn’t get away with it many times before a pattern would emerge and they would open themselves up to huge lawsuits should they be caught doing it. It’s worth noting a lot of the smaller CRA’s have the same annual reporting requirements as do the big three and you can request a free report from them. The Consumer Finance Protection Bureau has a PDF [consumerfinance.gov] that lists many of the smaller CRA’s and how you can contact them.
That said, I think that trying to plumb social networking information and deny credit is on par with redlining. It’s only started happening and I’ve heard of no legal challenges and I doubt the connections on any random social network can be completely separated from any of the factors that can’t be used to make credit decisions - race, color, religion, national origin, sex, marital status, or age. IANAL, but it would seem just looking at it could greatly increase your risk for an ECOA lawsuit.
Fanally (Score:4, Informative)