Facebook friends could hurt your credit

Facebook friends could hurt your credit
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The company you keep on social media could determine if some lenders deem you creditworthy or not.

What do your Facebook friends say about you?

Facebook has a technology that would let lenders assess your creditworthiness based on your social network when you apply for a loan, according to Yahoo! Finance.  

While the technology is primarily used to minimize spam messages and establish connections between people likely to know each other, a possible use by lenders is not too far-fetched.

‘When an individual applies for a loan, the lender examines the credit ratings of members of the individual’s social network who are connected to the individual through authorized nodes,’ the patent’s summary of invention notes. ‘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.’

Ultimately, lenders might balk at legal issues surrounding the use of such technology, such as running afoul of the Fair Credit Reporting Act (FCRA) and the Equal Credit Opportunity Act (ECOA). Plus, the info is somewhat suspect because much of it is self-reported.

Still, the idea is intriguing!

Read more: What is a good credit score?


Facebook not the first to explore this frontier

The move to use your social network to assess creditworthiness is not unprecedented. Kabbage.com, an alternative online lender that works with online businesses, had been paying particularly close attention to your friends and associates on social media as recently as a few years ago. And surprisingly, Kabbage found that online businesses with a good social media score were 20% less likely to default on loans!

This whole idea goes back to a key rule of relationship banking: Know thy customer. Banking used to be a local activity where judgments were made not always based on assets, but on your character. The fact that Kabbage and now Facebook may be using social media to determine what kind of person you are gets back to that.

So be sure the people you friend are real friends, not frenemies!

Read more: What your car says about your credit score

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