Lending companies are turning to social media as an underwriting tool that can help determine a prospective borrower’s creditworthiness, writes the Wall Street Journal.
Social media can be used to cross-check whether the same job information prospective borrowers list on their application is also posted to Facebook or LinkedIn, says the WSJ. Negative reviews a small business garners on eBay, meanwhile, could impact its ability to get more credit.
“Companies pioneering the practice generally lend to borrowers with troubled credit histories or no bank accounts,” says the article. “They say the use of alternative scoring metrics helps make credit available to people who might otherwise be denied and that they are careful not to violate federal credit laws.”
But consumer advocates believe the trend will hurt borrowers’ chances of obtaining credit, or could saddle them with higher interest rates. Regulators are monitoring the practice as well.
“The Consumer Financial Protection Bureau says it is aware that some businesses are exploring how to use social media to inform credit decisions,” the WSJ reports. “And the Federal Trade Commission will host a series of seminars this spring on emerging consumer-privacy issues, including the use of alternative scoring.”
“There could come a time where certain social media could be predictive and we’re looking at that, but it isn’t yet,” Anthony Sprauve, a senior consumer credit specialist at FICO, told the Wall Street Journal.
Written by Alyssa Gerace
