Forget “you are what you eat.” When it comes to your trustworthiness as as borrower, you are who you know … online.
Social networks are now being used by some lenders to evaluate whether you’re likely to pay them back.
The New York Observer reports that, while this methodology is still a few years away from common use by major banks, smaller institutions such as microlender Lenddo already use an algorithm based on input from a person’s various social networks to determine her creditworthiness. And more are likely to adopt the practice in the future.
Here’s the kicker: The information used by the algorithm isn’t just what you’ve made public—the banks are requiring your login information. Everything you can see, they can see. And they could even potentially send messages to your contacts.
From the perspective of the banks, “birds of a feather flock together.” They want to reach more customers likely to use their products through you. For a consumer who wants a loan, banks having more information isn’t necessarily better—especially when it’s open to interpretation.
What an Algorithm Can See
When you register with a bank that uses a system like this, you would be required to verify your login info for your social networks, like Twitter, Facebook or LinkedIn. Information from the accounts would then be fed into the algorithm, and, using what it could glean from your social media profile and networks, the bank would pass judgment on your borrowing merit. The algorithms, still in development, are closely guarded secrets at present, but they’re essentially a way of crunching even more complex factors to assess how big of a credit risk you might be. As Lenddo’s CEO recently put it, “There’s no reason there shouldn’t be thousands of engineers working to assess creditworthiness.”
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