How you socialise online - and who with - could help or hinder your application for a loan or mortgage.
Lenders' use of social media to check loan applicants' credit-worthiness is
increasing among overseas finance firms and is now to come to Britain.
When someone applies for a loan certain lenders will look at their Facebook
activity - including even to see whether any of their "friends"
are in debt difficulties.
The assumption is that creditworthy people tend to socialise together, and vice-versa.
The assumption is that creditworthy people tend to socialise together, and vice-versa.
One firm using this approach is Lenddo, which calls itself a "trust-based
lender" and so far lends in emerging markets like the Philippines and
Mexico. It was explicitly established to "leverage the data in social
networks" and believes borrowers' online reputations - measured through
their activity on Facebook and so on - will be a valuable way of assessing
their creditworthiness.
The chief executive of Lenddo Jeff Stewart said in an interview with news
channel CNN that: "Humans are really good at knowing who is trustworthy
and reliable in their community." He explained that increases in
computing power meant it was now possible to scour much more data as part of
making the lending decision. This could include, for instance, looking to
see whether an applicants' friends included other borrowers with the
business - and then checking to see how they were faring with repayments.
Lenddo is among the more outspoken of firms using social media as part of its
checks. But it is not the only one.
Movenbank is a US financial firm hoping to launch in the UK by the year-end.
It prices its deals based on the borrower's influence as measured, among
other factors, by how many followers or friends he or she has on Facebook,
LinkedIn or Twitter, among other sites.
The trend is part of far-reaching changes in the way customers bank and borrow. Most lenders still make use of traditional information kept on file by agencies such as Experian and Equifax, but they are increasingly likely to incorporate other information into their decisions as well.
Some for instance will use payment information from eBay, Paypal and Amazon alongside more traditional sources.
Controversial short-term lender Wonga tracks how potential credit applicants use the website before they apply. It might treat applicants who immediately seek the biggest possible loan differently from those who spend time on the site researching various loan sizes and reading other categories of information.
What the new lenders do....
- Check how active or "influential" you are on Facebook, Twitter and other social media sites and use this information in lending decisions
- Check whether any of your social media contacts are also customers - and see whether they have had repayment problems
- Lenders could make further decisions based on how much contact you had with any one person who, say, was in arrears
- Monitor how you interact with their own website (ie how much information you browsed) before making a lending decision
- Ask you to get your Facebook friends or other contacts to vouch that you are a good risk
and what they may not do:
- Undertake formal credit checks of anyone without their permission
- Directly contact your followers or friends regarding your application without your permission
The trend is part of far-reaching changes in the way customers bank and borrow. Most lenders still make use of traditional information kept on file by agencies such as Experian and Equifax, but they are increasingly likely to incorporate other information into their decisions as well.
Some for instance will use payment information from eBay, Paypal and Amazon alongside more traditional sources.
Controversial short-term lender Wonga tracks how potential credit applicants use the website before they apply. It might treat applicants who immediately seek the biggest possible loan differently from those who spend time on the site researching various loan sizes and reading other categories of information.
What the new lenders do....
- Check how active or "influential" you are on Facebook, Twitter and other social media sites and use this information in lending decisions
- Check whether any of your social media contacts are also customers - and see whether they have had repayment problems
- Lenders could make further decisions based on how much contact you had with any one person who, say, was in arrears
- Monitor how you interact with their own website (ie how much information you browsed) before making a lending decision
- Ask you to get your Facebook friends or other contacts to vouch that you are a good risk
and what they may not do:
- Undertake formal credit checks of anyone without their permission
- Directly contact your followers or friends regarding your application without your permission
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