Can social media help you get credit?

By Marianne Curphey

Until recently, lenders were often wary of potential borrowers with no traditional credit history, and rightly so -- how could a lender know if you were a responsible consumer if you had no credit record?

Now, however, third-party firms are emerging that comb social media to help lenders confirm potential borrowers' identities and determine creditworthiness. These profiling services are aimed at young people without much credit history, or those who have moved to the UK. While it may seem like a great solution, experts warn it could threaten your privacy.

Mining your social media
You provide a wealth of information about your habits and spending when you use your smartphone or computer, which can act in your favour if you spend wisely, but don't have much of a credit history. Traditional credit agencies look at your credit history and your ability to pay bills, but not at your day-to-day spending. If you're young or just don't borrow much, you may not have left much of a footprint in those usual categories.social-media-score

Enter companies such as FriendlyScore, which requires you to grant it access to your social media accounts, such as Facebook, LinkedIn,
Twitter, Instagram and, soon, PayPal. FriendlyScore is designed for
anyone, but particularly those with a thin or non-existent credit score. It analyses your online footprint via social media sites, and it looks at your computer's Internet Protocol address and your browsing history.

After analysing your posts, it gives you a score, which you can use to
apply for credit. Once you have your score, you can elect to use it to apply for credit offers from FriendlyScore's commercial partners. However, you are not obliged to do this. FriendlyScore makes its money from charging a subscription rate for lenders who want to use the scores that are generated.

Other, similar companies are cropping up in other parts of the world, such as Lenddo, which is active in the US and South America.

One key piece of information these companies garner from your profiles is your location: do you live where you say you do, and do you really exist? They also plot your social "graph", which links you to other people -- meaning that whom you associate with may impact how creditors judge you.

Although using social media to enhance credit scoring is relatively new, some industry experts expect it to become more commonplace in the future.

"It's something that is being looked at and discussed across the industry," says James Jones, head of consumer affairs at credit reference agency Experian. "It is at a more advanced stage in the United States, and could be a method for people with thin or non-existent credit ratings to get affordable credit."

However, the bottom line is, social media-based scores are not going to replace scores based on factual data and credit history any time soon, Jones says.

All of these companies are very new or in development, so major lenders still rely on the traditional credit scoring process.

Also, as Equifax notes in a 2015 research paper, organisations need to be aware of the capacity for fraudsters to create false identities.

"While social media can be used to validate an identity, the rise of fraudsters creating synthetic identities means it's not a fool-proof solution for organisations to rely on," says author Peter Harrison, product leader in identity and fraud at Equifax.

But if you have low to no borrowing history, it could help you get your foot in the door to a credit product.

Accuracy, privacy concerns
Jones concedes, though, that this new technology is not without its challenges. There are issues around accuracy, for example.

"There would be potential for people to misrepresent themselves on social media if they were planning to apply for a loan in the short term," Jones says.

Then there are the privacy issues. Not everyone will be OK with a lender having access to their most personal data, even if it is the only way to prove creditworthiness. And it is your responsibility to protect your data by not revealing it to others. These sites don't store your passwords or charge you for the scoring service, but it is up to you to make sure your logon details are kept safe and that you take care of your own privacy settings on social media.

It's important to think carefully about what you put online, Tony Neate, CEO of Get Safe Online, a government-backed initiative to educate consumers about internet safety, said in an emailed response to questions. "In terms of revealing information (online) about finances or spending habits, I'd always advise to do this with caution," he says.

John Greenwood, commercial director of Compliance 3, which helps companies eliminate card and data fraud at call centres, says allowing apps to track and analyse your social media footprint is giving them a "huge amount of access to your privacy".

See related: The cost of a poor credit rating, Rebuild your score with a credit-building card

Published: 9 October 2015