Social Media Friends Could Affect Your Credit Rating
It was bound to happen eventually, but nobody expected virtual relationships, or social media, to become Facebook, Inc. (NASDAQ:FB) assets, let alone influence the value of FB stock, this soon! Indeed, your Facebook friends and social media connections are financial assets of sorts; if you have the right ones, they might serve as collateral for a bank loan or a mortgage. But who would have ever imagined that social media could be used as a tool to secure credit? Turns out, banks may soon decide your mortgage eligibility according to your friends on Facebook.
The concept is still theoretical, but this may soon become reality. The day when banks decide to approve or deny a loan or a credit card according to the prospective borrower’s Facebook friends is based on the approval of a patent application that a major social network filed with the U.S. Patent and Trademark Office. The social network? Facebook.
The company filed the patent on August 4 and the application in question is for “authorization and authentication based on the individual’s social network.” More specifically, mortgage and loan processing would be based on the review of the credit scores of an applicant’s social network connections via an authorized, licensed node. (Source: “How Facebook could affect your chances of getting a loan”, The Toronto Star, Aug.10, 2015.)
Your Social Media Network’s Aggregate Credit Score Is What Counts
If the average score of an applicant’s connections reaches the minimum credit score, the lender continues to review the loan application. Otherwise, the request is rejected. In short, if your Facebook friends are struggling to repay their loans, then the bank may refuse to grant you one.
Is this a joke? Nope.
The new system works like a spam remover or a content restriction filter, preventing access from individuals considered unreliable, filtering these to a sort of blacklist. It could reveal a simple way banks could use social media to automatically determine credit worthiness via an algorithm, cutting down on time and risk.
In the world of lending, software that allows you to determine a borrower’s reliability is already a technological feat; to add a social media dimension is stretching the concept to an almost Orwellian level. The “social media credit score” concept may soon replace the “credit bureau,” because they are of limited use when credit institutions want to gain insight into the habits of first-time borrowers.
In France, there is already an active partnership between Facebook and some banks, including BNP Paribas and the BPCE (Banque Populaire and Caisse d’Epargne). However, so far, these are limited to improving the ad experience in accordance to customer expectations or Internet searches.
The reliability, or even the viability, of social media credit score systems has not enthused many traditional lenders, but if Facebook were to get behind the idea, it could quickly change skeptical attitudes due to the company’s sheer scope and size.
How should we, as Americans, approach this practice?
You should know that in the U.S., the Federal Trade Commission categorically prohibits any form of discrimination from banks toward their customers. Age, gender, skin color, and religion are elements that should in no way influence creditworthiness among other things. Facebook and the banks interested in using its new credit algorithm may need to overcome some legal hurdles before they adopt the practice, according to Quartz. (Source: “Facebook’s new patent lets lenders reject a loan based on your friends’ credit scores—but don’t freak out,” Quartz, August 5, 2015.)
Nevertheless, web sites such as Affirm or Earnest have already started to observe users’ activity, offering consulting services based on their interaction and discussion on social networks, such as Facebook or Twitter, to determine their reliability. They can already start using such technology to “help” people get a loan, perhaps with the support of a little more data to substantiate financial information.
The social media credit score is a product of the already-murky borders between traditional credit scoring and marketing. Credit scoring, as provided by FICO or Equifax, can generate consumer and buying power scores to predict spending and whether applicants could make lenders money or lose it.
Such a move could also be an interesting development for FB stock. Today, investors value the company as a social media platform. They may soon have to add on a credit rating bureau to their valuation, too.