Dislike: How Facebook Can Hurt Your Credit

Libby Kane
Posted

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.”

So, What’s the Problem?

The fear isn’t so much that the information gleaned from your networks will affect your actual score, but that gaining access to extraneous information that’s currently illegal for a lender to request (like race, marital status and receipt of public assistance) will contribute to systematic discrimination known as “redlining,” where certain segments of the population could be refused loans or charged higher rates based on racial, sexual or other prejudice.

Even seemingly innocuous social info can be damaging to customers. In one case, a Canadian woman’s disability payments for depression were revoked after her employer’s insurance company saw pictures of a beach vacation she’d posted on Facebook. While insurance fraud is common, in this instance, the 29-year-old woman’s doctor had advised her to exercise and socialize with friends. Then, without any notice, the checks stopped coming.

Why Your Networks Matter to Financial Institutions

1. To Leverage Your Connections

This means that banks will both judge you on your friends and use you to make new ones of their own. Their logic? If your friends are upstanding citizens who pay off their loans, you will be, too. And, reciprocally, if you’re responsible, they’re ripe for targeted marketing. Banks can’t message your friends directly, but they can gather names and contact information from the profiles of people in your social circle. 

2. To Make Sure You Pay

As anyone who has read “Confessions of a Shopaholic” knows, avoidance is a key tactic when dodging bill collectors. But when the people you owe are authorized to contact your Facebook connections about unsettled accounts, it’s a different story. Although this wouldn’t be any institution’s first course of action, it’s within Lenddo’s rights to post on your own public Facebook wall that you’re behind on payments. And you have to agree to that when you sign up—it’s part of the terms and conditions.

What Can We Do?

Keep an eye on the developments. At the moment, the algorithms are still about three to five years away from public adoption, so there’s no need to panic. But keep in mind that no matter how adept your manipulation of Facebook privacy settings, they’re ineffective to someone who can login as you. If the social network algorithm enters mainstream use, the only real way to eliminate judgment is to refuse to sign those papers to grant lenders access to your networks.

As Dan Tynan of PC World puts it: “Will you be legally required to give your bank access to your Facebook, Twitter, LinkedIn profiles when you need credit? Probably not. But they won’t be legally required to approve your loan, either.”

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  • http://profiles.google.com/sharissadove Sharissa Dove

    Wow. Something seems really wrong about this whole idea. If my bank was requiring me to hand over my login information to do business with them I would probably look elsewhere. If the services were a necessity I would probably just delete my accounts so they had nothing to gain access to. It seems to me that there are a lot of people who think they have a right to access our personal information and accounts these days just do to business with us – I find this assumption quite scary. 

    • Sherry

      I’m with you, Sharissa.  Denying open access to my friends’ profiles is one of the big reasons I decline invitations to play games or use apps on Facebook.  I’ve also started setting up new logins for websites that I once logged into using the Facebook connect feature and removing those sites’ permissions under my Facebook account’s privacy settings.  If banks and creditors are allowed to request (demand?) our login into, I bet a lot of us will delete our social network accounts faster than they can come up with their next scheme.

    • http://www.facebook.com/people/Alexis-Elizabeth-Drob/1653803071 Alexis Elizabeth Drob

      I have been told several times that even if you “Delete” your  FB account does “NOT” mean it is actually gone. So I’m not so sure this would be cure all.

  • Laura

    I get the feeling Facebook will not allow this kind of invasion of privacy to allow banks to require your login information. I know much of our information is shared with companies for marketing purposes, but that is at the discretion of each individual user what applications they allow to access their information, and what information they share on the site in the first place. Let me be clear that I and many people I know will delete their Facebook before they allow companies and third parties to access our login information. Facebook will not risk losing thousands of users because banks want to snoop into our social network life, and they would be happy to pursue more lawsuits to get their way.

    • Sherry

      If you sign a loan or credit card application that includes a clause granting the creditor permission to use your login info, Facebook might not be able to sue the creditor.  But if Kxo is correct that giving a creditor your login info puts you in violation of Facebook’s Terms of Use, maybe Facebook will be kind and simply shut down your account.  However, if the creditor uses your account to spam others or cause other problems, guess who Facebook will be blaming.

    • Pamela

      Facebook isn’t as innocent as you might imagine. Did you know that at this moment, Facebook knows you are on this site? It is true.. once you leave facebook they track you from site to site. The only way to stop it is to delete your cookies and use another web browser for accessing facebook than you normally would use for your general browsing. They claim they do this as a security measure. Well…we’ll see.
      (BTW, this can be researched on any search engine.)

  • Anonymous

    If this were to come to fruition, then I’m fairly certain I would be just one of many unplugging from social networks in order to protect my privacy from lenders…I can’t see any way this tactic would help consumers to get higher loans at more favorable rates, this would only benefit the banks

  • Djkuips

    Just   like  verizon  trying to charge us to make a payment  Public  outcry will prevent  this  from happening

    • Bhbadrooster Hicks

      Public outcry means nothing anymore. People do not realize that their voices mean nothing to these criminals in the financial or political arena. The other countries on this planet are now laughing at the united states of america fool being the great fools that we are. And here’s the rub, we let them do it everyday. So it’s our fault.

      • Tonyni

        Public outcry prompted Verizon to abandon their plan to charge customers for online payments.  Public outcry made Bank of America ditch a plan to charge users $5/mo to use a debit card.

        Public outcry can have an effect, actually.  It just has to be in large enough numbers.

  • anon

    i was under the assumption that there is no real privacy anymore……………..

  • pixie

    That’s insane! Half of the people I’m “friends” with on facebook are from high school (20 years ago) and live over 2,000 miles away from me. We rarely socialize in the real world, just keep in touch here and there through facebook. I don’t know if they’re late on their loan payments and it’s none of my business!  Why shouldn’t my credit score and past payment history be enough. Wow.

  • Kxo

    Giving your login information out is a Terms of Use violation with basically every social network. You’d have to be a fool to give up that information.

  • wonder

    So, how do the algorithms treat someone without a Facebook or Twitter account?

  • Anonymous

    I see that there will be a huge market in the future for Social Network Managers who will tailor FB or whatever pages. This is really just the same old crap with new tech. 

  • Ldkawk

    another reason to keep the cash at home

  • Beautyseer

    Oh, but seriously folks — it’s time for us to take down the big banks ourselves by simply failing to pay because this economy is not giving us enough to stay alive, let lone pay credit cards and student loans. When everyone pays cash (debit works), the cost of things will collapse to a level we can actually pay on the pitances available from lousy jobs, inadequate Social Security, and the pittance that can be gleaned from social services.

    • Crocky

      Maybe you’re just in the wrong line of work?  There are plenty of jobs to be had in my profession, and have never had a problem with making money.  The difference between you and me?  I actually WORK for what I have instead of blaming someone or something for not giving me enough.  So quit complaining and DO SOMETHING about your situation.  Sheesh.

      • Julie

        Wow, that is one of the most insensitive comments I’ve ever read. It’s great that you have a profession where you have never wanted for a job – but this doesn’t mean that everyone will be qualified to do that or should even be in that profession. Not to mention that location is another factor. You make money? Great. Now understand that many of us can’t make as much for many different reasons that have nothing to do with laziness. You can’t compare your situation with that of others, it’s unreasonable to think they have been exposed to the very same factors that have helped you earn money.

        • Crocky

          Guess what?  I had to move every time I got a new job in my career, and we’re talking about MAJOR interstate relocations.  In this country, you have to be flexible and willing to do what it takes to work, such as relocate.  Don’t like it?  Tough.

          • Only Kindness

            Crocky you are NOT nice! Pull yourself up by your bootstraps and learn to quit judging! If I can do it so can you! Stop being so lazy, it’s very lowbrow to pass judgements on others and lacks intellectual sophistication! Reality check, times are tough for almost everyone. How wonderful for you that you have no problems to speak of. Many others however do, so be nice or spot your hate to yourself and others like you!

  • janet

    This is an incredible invasion of privacy and a really stupid idea. It’s against Facebook policy to give out your log-in information, for one thing. I have about a hundred friends on Facebook, most of whom are business contacts, friends from college (20 years ago), and people that I play games with. Most I’ve never even met in person. Just a few good friends from current real life. I have no idea what any of their financial lives and creditworthiness are like, and I don’t care either.

    At least this sounds voluntary. I’d start looking for a new bank if mine ever started doing something like this.

  • http://www.facebook.com/people/Alexis-Elizabeth-Drob/1653803071 Alexis Elizabeth Drob

    Before I give out my FB log in information just to get help, I would rather go sell drugs, that’s how important it is for me to acttually safe guard my personal information.

  • http://pulse.yahoo.com/_5IJWPOZQBMWPEIREQ7IXTWSUNE Luna

    So what if you don’t have a FB account??? Not everyone has one!

  • http://www.facebook.com/people/Laurel-Sayler/100000556751385 Laurel Sayler

    I would just tell the bank that I didn’t use any of those sites even if I did. How would they know if I’m lying if all of my info is private? They could do a search of my name and come up with one or two people who have the same name as me, but that doesn’t mean that any of those pages are me.

  • Anonymous

    There are two issues here: factual and moral. 

    First off, this company is selling lenders a crock.  How could they possibly have the data to back up their claims about the links between people’s creditworthiness and who they “friend” on Facebook?  My facebook friends and friends of friends are incredibly random. 

    Second, I have friends who have made mistakes in life or have had just plain hard luck, and I’m not going to abandon them on Facebook or in real life  because I’m afraid that one day it might hurt my mortgage loan application.  Years ago social stigma could destroy people’s lives.  It’s ironic that this company has used technology to come up with a way to bring back the ugly social discrimination of the past.  I’d look elsewhere for a loan.

  • Anonymous

    There are two issues here: factual and moral. 

    First off, this company is selling lenders a crock.  How could they possibly have the data to back up their claims about the links between people’s creditworthiness and who they “friend” on Facebook?  My facebook friends and friends of friends are incredibly random. 

    Second, I have friends who have made mistakes in life or have had just plain hard luck, and I’m not going to abandon them on Facebook or in real life  because I’m afraid that one day it might hurt my mortgage loan application.  Years ago social stigma could destroy people’s lives.  It’s ironic that this company has used technology to come up with a way to bring back the ugly social discrimination of the past.  I’d look elsewhere for a loan.

  • http://pulse.yahoo.com/_6OFEYOFMCOSVXJFLA6SEORQGQI Tessy

    Most of the posters here simply don’t get the social and market dynamics that surround this issue. You are talking as if the people who are borrowing from these types of lenders have limitless options for (safely, legally and cheaply) borrowing money. They don’t. If you live in emerging markets in Africa, South America or Asia, and are 20-30 years old and have a full time job, you probably can’t easily get a (traditional) bank loan. You are likely to still live with your parents, and have no equity and no credit rating (because banks won’t give you a credit card, and there is no credit rating agency in any case). You are probably supporting family members through school and paying any family medical bills that come through. BUT you have a network of friends and family in the social media who might vouch for you. In this scenario, this becomes a very attractive offer. In addition, it looks like the interest rates are very reasonable (has anyone here actually visited the site in question?), unlike some of the payday loan rates being offered in “developed countries”. 
    “Why shouldn’t my credit score and past payment history be enough”. Because you’ve never  had a loan and you have no payment history. You have a masters degree and work for a global bank call centre. But you can’t borrow. Your brother needs school fees paid this week so he can help work the family into the new middle class. What do you think you’re going to do? Your mum needs medicine for a serious heart condition, but you already pawned your wedding ring to pay your sisters college fee. You’re the only person in your family with an education and a full time job. Still think letting someone see who your friends are online before they lend to you is immoral?Traditional microfinance (and historically, all lending) was based on reputation and community. This is no different, aside from the fact that technology is being used as an enabler. Our idea in the US that we all have the “right” to cheap debt is an ill founded one, and one that we have abused. Don’t assume everyone has the same freedoms.   

  • Anonymous

    Working in the computer field for 30 years, you do find out some things that just aren’t good!   Cookies!  I know most of us have baked them before but, that’s not really the kind of cookies that I mean.

    Cookies are used by EVERY web site to gather information about each user… that’s each one of us!  There are OK cookies, the kind that just gather information about your computer so the site can display their web sites information correctly, then there are the bad cookies… the cookies that are designed to gather all your personal information about you.

    Cookies are a very serious invasion of privacy, and the government does nothing about it because they themselves want to gather as much information about you… US as possible!  For anyone to think there is security on the internet is seriously naive!

    Experts have found some interesting FACTS about sites such as Facebook and Skype.  They’ve found that there are appx. 90,000 hackers who probe into the personal lives of whoever they choose, to gather whatever information they can.  They’ve also found that there are those who can now use peoples PC camera’s to visually spy on them.

    The internet is far from safe… especially since these “algorithms” are designed for 1 purpose only… SPYING!!!

  • Anonymous

    This type of algorithm would unfairly skew data about people, like me, who work in compassionate ministries and social work. I have hundreds of “friends” whom I mentor now, or have mentored. Many of them have unsavory backgrounds — many are still struggling — but we are “friends” because of what I can contribute to their lives, not a social or cultural relationship.

  • LAURIEASMITH08

    can facebook give birth for me too?

  • http://www.OptiRate.com/banks Serge Milman | OptiRate

    I don’t believe that Banks are legally permitted to decline credit based on social profile “score” — any such practice is likely to result in lawsuits and likely large fines.

  • http://www.facebook.com/plogan721 Patricia Logan

    I think it is illegal and immoral.   They are just trying to put up a cast system, that’s all.   I agree with someone who said they would rather sell drugs before they give out any information.   It is bad enough we have the haves vs. the have nots in this country.   When is everyone going to grow up, and stop basing everything on what I do in life.  People screw up, and people mess up.  It is called being human.  These creditors act like you cannot do anything without a credit score.  I say abolish the entire system if they are going to do that.   I am not giving up my accounts, because my friends consist of business contacts, family, and people who give sound advice.   Who the heck they think they are?   I wish these people would read some of these comments and take heed.   I am sick of their bullying.

  • Cocoachanel74

    This can’t be legal….however, I will enjoy my life any way I choose without being bullied or scared into deleting my Facebook page for ‘their’ reasons….this is ridiculous…. 

  • Triciaburdon

    I’d leave Facebook before I gave out my password to any organization!  My Privacy settings are for “Friends” only and that’s the way it will stay!  If they are trying to pass this in to law, why aren’t we fighting it, or are we?  I’ll sign up!

  • Adrianmorrison126

    I thinks going forward, a lot of people will leave facebook, I think in the last few months facebook, is putting too much emphasis on adverts, it is a social networking site where people interact with each other not an advertising site, we can get adverts on TV

  • Solitaire

    Never gonna happen.

  • Guest

    Scary indeed. I am credit worthy but I have a sibling who is absolutely not. I have no control over the family I was given, it was simply fate. Judging my creditworthiness on something beyond my control is ludicrous. I would not do business with any company that would require such a thing. If it became the norm I would delete all of my social media and learn to live without banks as much as possible. I’m so tired of corporate creed. In my opinion they’re hastily killing the goose to get the golden egg. If we can no longer spend money, they can’t make it. We are the masses, make our voices heard with our pocketbooks. We have more power than we realize!

  • something

    This may shock people, but there is a reason many people have a “clean” email address which they use to establish a vanilla Facebook/Twitter/etc. account. I’d just give that account info to the potential lender.

    And yes, in theory this is against the terms of service, but if the 2nd account also uses your real name, it’s kind of a grey area. It’s still you–not like a false name/identity.