When reports recently surfaced that lenders were considering using data from a person’s Facebook profile to determine their creditworthiness, a lot of people panicked. The possibility your drunken status updates or network of friends could make it more difficult to buy a house or get a new credit card seemed pretty alarming, and might have had more than a few people thinking about deleting their profiles entirely.
Now, it turns out all the concern about linking social media data with credit scores was overblown. Lenders who had expressed interest in mining Facebook data to help determine a person’s credit rating are backing away from the idea, the Wall Street Journal reported. And Facebook, which filed a patent for technology to allow lenders to look at the your friends’ credit ratings and use the information to determine whether you should receive a loan, doesn’t appear to have any plans to actually implement such a feature.
The backtracking is happening for a couple of reasons. For one, Facebook has made it difficult for third parties to access its deep well of data. In addition, regulatory issues are likely to discourage anyone from using information from social networking profiles to make lending decisions.
If social media companies were to mine user data for credit scoring purposes, they would likely be subject to the Fair Credit Reporting Act, the Federal Trade Commission (FTC) indicated in a recent report. Those credit reporting rules require consumers to be informed if the information in their report is used to deny them credit and allow people to dispute inaccurate information, along with giving them other rights.
Using “big data” from social networks and other sources could also make it more difficult for some groups of people to access credit, the FTC warned.
“[I]f big data analytics incorrectly predicts that particular consumers are not good candidates for prime credit offers, educational opportunities, or certain lucrative jobs, such educational opportunities, employment, and credit may never be offered to these consumers. Some fear that such incorrect predictions could perpetuate existing disparities,” noted the FTC’s report, Big Data: A Tool for Inclusion or Exclusion?
Though the FTC is worried about the possibility of social-media-determined credit scores cutting off access to credit for some groups, the idea of looking at Facebook data to make lending decisions originally sprang out of a desire to expand access to credit to under-served populations.
Credit scoring agencies have been exploring using alternative data sources to assign credit ratings to people who lack credit scores. TransUnion’s new CreditVision Link score relies on data from payday lenders, tax records, and checking accounts to assign a credit score to those who previously lacked them. The FICO Score XD uses cable payments, public records and property data, and other information to assign scores to people who don’t have a robust credit history.
Some in the industry had suggested that social media data might eventually be incorporated into these alterative scoring models.
“If you look at how many times a person says ‘wasted’ in their profile, it has some value in predicting whether they’re going to repay their debt,” Will Lansing, chief executive of FICO, told the Financial Times in October 2015. “It’s not much, but it’s more than zero.”
Data from Facebook may well be useful in predicting credit scores, Douglas Merrill, the founder of online lender ZestFinance, told the Wall Street Journal, but his company has still decided against mining the information. “We’ve determined it’s creepy to use social media,” he said.
Just because lenders and credit scoring agencies aren’t actively using Facebook data to determine your credit score doesn’t mean social media has no bearing on your finances. Spending a lot of time on Instagram or Pinterest could encourage you to spend more money, for one. Then there’s the matter of your career.
More than half of employers check out an applicant’s social media profiles before they extend an offer of employment, a CareerBuilder survey found, and 48% of hiring managers said information they’ve found online caused them to not hire someone. Some landlords are also using social media to screen tenants, according to a report from KARE 11 in Minneapolis.
In other words, you should still think twice before sharing pictures of last weekend’s alcohol-fueled shenanigans. It could cost you in the end.