FICO is the gold standard for calculating credit scores. But because of how FICO scores are calculated, they make a lot of consumers “unscoreable”. The answer? (According to banks and lenders around the globe…) alternative credit scoring data. Data that can come from utility companies, landlords, cell phone records, and even your social media accounts. Yes… your activity on social media affects your credit score and financing opportunities.
Before you freak out, there are limits. First of all, the only companies actually creating credit scores based on social media data are not in the US (so far).
But we think it is only a matter of time before they have a foothold in the US. Meanwhile, Facebook (the social media giant) has taken a stand against companies that want to access it’s treasure-trove of user data for their own gain.
Why doesn’t Facebook want to open its databases for credit score calculations? Because if they did, they would have to comply with the many rules established by the Fair Credit Reporting Act and the Equal Credit Opportunity Act. Any social media company that opened its databases to be used specifically for credit scoring would be opening themselves up to litigation and be required to disclose exactly what social data led to credit denials.
But anyone can use the public-facing data available on Facebook (and other social channels) to create whatever credit score calculations they want.
(Side note: Facebook recently secured a patent on technology that would allow lenders to use the credit scores of your friends on Facebook to assess your creditworthiness – assuming “birds of a feather flock together”. But this tech is NOT being used and there are no plans to use it any time soon.)
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Keep in mind, however, that Facebook and other social media platforms are not the only source for “big data” information like your purchase habits, web browsing trends, and magazine subscription history. There are plenty of companies out there happy to sell access to their databases to any business that is willing to pay.
What can they use this data for? Targeted marketing is the most common use.
Have you ever noticed that once you start researching new refrigerators online, you start seeing ads online for refrigerators, getting emails about appliance sales, and even receiving postcards in the mail about refrigerators on sale in your local area?
That’s “big data” at work.
And, if you pay attention, you’ll also see lots of other ads headed your way for things related to refrigerators – like ovens, freezers, kitchen remodeling services, home appliance insurance, and fancy coffee makers. If the databases say that people your age and at your income level tend to buy a new washer and dryer within six months of purchasing a new refrigerator… you’ll start seeing email and postcard ads for washers and dryers about 4 months after you buy your fridge. Retailers LOVE “big data”!
And so do banks.
Why? With traditional credit scoring data, there are between 45 and 64 million Americans without a credit score – mostly recent college grads and immigrants. They are often denied credit because there is not enough data to make a decision using the FICO system. Not surprisingly, about 40% of these “unscoreable” people are homeowners, and many hold professional-level jobs or are retired.
That means that a significant portion of these “unscoreable” Americans are potential customers for lenders offering loans and lines of credit.
Banks make money when they collect interest on the loans they make and credit cards they issue – so having more people to sell their services to increases their profits. To score these “unscoreable” consumers, they need other sources of data.
“Big data” is a perfect place to look for these alternative data points to identify potential customers who would otherwise be overlooked by traditional credit scoring models. Some lenders are already using cable bill history, rent history, cell phone bill history, and payday loan history to qualify consumers with “thin” credit files.
And once the bank has identified you as a potential borrower, they can snoop in your social media profiles for more information to judge your creditworthiness.
It’s all perfectly legal because what you post on social media is public information. All your posts, tweets, and selfies are free for anyone to see.
Here’s how what you post on social media affects your credit today:
- Lenders can look at your Facebook friends and see if any of them are already their customers. They can then look up that person’s payment history and use it as a projection of how you would pay.
- They can look at your job history and professional network to verify employment and confirm identity.
- They can look at your social network to see if your friends appear stable and responsible based on work history and credit profiles. This can then reflect on you – good or bad.
- They can see if you participate in educational opportunities aimed at improving your creditworthiness. If they OFFER a prospective borrower a financial class – and that person does not take them up on it – they are considered more risky.
Bottom line –it’s already happening.
What you post on social media affects your credit score and financing opportunities –often just not as a first-line decision guide. Rather, social data is more likely to be used for a second-look decision after a denial or for evaluating traditionally “unscoreable” consumers.
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What should you do to control how social media affects your credit score?
- Be careful with what you post! Drunken selfies and posts about using your rent money for a new handbag WILL come back to haunt you.
- Choose your online friends as carefully as you would choose your real-life ones. You may want to clean up your friend lists by un-friending anyone who has credit problems.
- Keep your professional online profiles complete and up to date. You’ll find these in your profile areas on Facebook and LinkedIn. Concentrate on building a reliable work history and a network of other stable people in your line of work and other related professions.
- Review your posting history and remove posts and pictures that may raise questions (or eyebrows). But do it a little at a time, and well in advance of trying to apply for a line of credit from a lender that may use alternative data scoring methods.
- Read blogs, take financial educational courses, and follow the Facebook profiles of companies, authors, and advisors that promote good financial habits. You’ll learn valuable skills and demonstrate that you take your finances seriously.
If your credit score is already in the “danger zone”, give NCES credit restoration a try. We help you remove erroneous and negative records, restore troubled accounts to “paid as agreed”, and preserve as much credit history as possible to build scores up fast.
Learn more in this short video.
If you have any questions, please give us a call at 770-952-5168 or contact us online.
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This information is intended for informational and educational purposes only and not as legal advice. If you have concerns about your credit report, harassment, identity theft, illegal collections activity, garnishments, or property liens, you should consult an attorney who specializes in consumer rights and defense.