In recent posts, this blog has been reporting on the shift towards greater use of alternative data sources to determine the creditworthiness of potential borrowers. More data is being created by consumers today than any other point in history, and leveraging this information to effectively determine a borrower’s ability to repay their loan can help institutions of all sizes fine-tune their approach to application processing.
One of the richest potential sources of information on borrowers are social media sites. These platforms can provide a near-complete picture of a consumer: age, sex, location, profession, income, brand preferences and more. Now, after Facebook patented novel technology, the platform may become a means of easily and accurately supporting credit risk assessments. Although Facebook has yet to release an official statement, CNN Money has reported the changes could grant lenders the ability to gain a better understanding of an individual’s propensity to repay a loan by looking at the credit scores of that individual’s connections on the site. In other words, if your friends on Facebook have bed credit, you might start having trouble securing a loan.
“If the average credit rating of these members is at least a minimum credit score, the lender continues to process the loan application. Otherwise, the loan application is rejected,” the patent states.
As the source points out, there is the potential for trouble under the Equal Credit Opportunity Act if this strategy moves forward. The Equal Credit Opportunity Act regulates the types of data lenders can use in the decision process, although it is not yet clear exactly the types on information would be available to lenders from users’ Facebook profiles.
This blog will continue to report on how the use of alternate date sources is becoming increasingly crucial to lender success, so be sure to check back regularly for more updates. If you are interested in cutting-edge credit scoring solutions that give your institution a more complete view of borrowers’ credit risk, contact GDS Link today to learn more about our risk management solutions.
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