Turns out your Facebook friends are not just there to fill up your news feed with wedding photos and pictures of dinner out; your friends list could also impact whether or not you get approved for your next loan.
A few cutting-edge technology startups are now using social data – like your Twitter profile or your Facebook friends list – to determine whether or not to give you a loan. This is obviously a big departure from normal lending procedures. Typically, most lenders rely on the traditional FICO credit score when calculating the risk of lending to a particular person. Your FICO score is made up several components, like your payment history, the amount of money you owe and the length of your credit history. But now, several emerging lending companies are taking the idea of a credit score a step further, using a person’s social connections and online activity as a barometer of creditworthiness.
Sounds a bit too futuristic? It may be.
Using social networks to judge a person’s creditworthiness could be ripe for manipulation; someone could easily create or limit their social media activity to ensure he or she looks good in the eyes of a lender. Many also question whether activity on social media is an accurate representation of real-world behavior (or paying back a loan, for that matter).
Regardless, more and more companies are trying to use different sets of data to determine a person’s creditworthiness. Here are just a few of the companies using social network data to lend out money:
- Kreditech: Kreditech, based in Germany, lends to middle-income individuals and uses 8,000 data points in the loan application process to determine a person’s creditworthiness. Kreditech not only uses social media to inform the lending process, but it also judges how a person fills out the loan application, docking points on applications completed in all caps or with spelling errors.
- Kabbage: Kabbage offers cash advances to small business owners and uses data collected from the borrower’s accounts (such as eBay or PayPal) to judge creditworthiness based on account activity. Business owners can also link their social media accounts to Kabbage to further boost their Kabbage creditworthiness.
- Lenddo: Lenddo determines your creditworthiness based on your Facebook friend’s reliability. That means bad news if you have a friend who was late in paying back a loan to Lenddo; it could harm your chances of getting a Lenddo loan, especially if you interact frequently with that friend. With a quarter million members, Lenddo is operating in several developing countries but not yet in the U.S.
If you’ve had a difficult time getting access to credit and you think you’ve got a high-quality Facebook friends list, then keep these emerging lending companies on your radar; they may soon develop a solution for all borrowers in the U.S. Until then, there are always the traditional ways of building your credit history, like making on-time payments or opening up a secure credit cards (and you can keep your Facebook friend list out of the equation, for now).