Going to be buying a new car soon? Thinking about buying a house? Then you may want to be careful who you associate with online: Companies are starting to look at your social media history as part of the decision to offer you a loan.
If you’ve obtained a large loan or even a credit card before, you’re likely familiar with FICO scores. Creditors keeps close tabs on whether or not you’ve paid your bills on time in the past to decide whether you’ll be a worthy borrower in the future. That leaves a large number of people unable to obtain credit simply because there’s not enough historical data on them yet.
Of course, just because someone doesn’t have credit data yet doesn’t make them a bad borrower. That’s the concept behind a new breed of online loan companies that use your social media history, browsing history, GPS location data and e-commerce purchases to decide how likely you are to repay a loan.
Germany-based lender Kreditech analyzes over 8,000 data points when a person applies for a loan, leveraging the power of big data. The company even accounts for the length of time you spend reading instructions and the manner in which you fill out the application when making its decision. According to Kreditech, over 85% of applicants are rejected – your online credentials need to be top notch to qualify for a loan.
Lenddo, another online lender, focuses on your social media history to make a decision. Part of the application process requires linking your Facebook account. If you’re friends with someone who has defaulted on a Lenddo loan, your own ability to score a loan takes a hit. "It turns out humans are really good at knowing who is trustworthy and reliable in their community," said Lenddo CEO Jeff Stewart to CNN Money. "What's new is that we're now able to measure through massive computing power."
Kreditech operates out of 11 countries; Lenddo currently operates out of 3. Neither operates out of the U.S. yet, and your credit score remains the best factor in determining your creditworthiness. Still, using big data in lending decisions is a rapidly growing business: Kreditech alone issued 10 million loans last year totaling hundreds of millions of dollars.