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Would You Apply For a Loan Based on Social Data Credit Score?

September 23rd, 2013 · No Comments · Consumer Debt

Meredith Simonds

by Meredith Simonds

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Instead of making lending decisions based on your FICO credit score, some online lenders are measuring credit worthiness by social data.

Though the traditional means of applying for loans is still at your disposal, some online start-ups are charting new territory when it comes to evaluating your credit worthiness.

Instead of making lending decisions based on your FICO credit score generated by data on your credit reports, some online lenders are measuring credit worthiness by social data collected via sites like Facebook, Twitter, LinkedIn, Amazon, eBay, and PayPal.

Here’s how it works.

1) You grant these online lenders access to your profiles.

2) These lenders search through your profiles for information that suggests to them your credit worthiness, which may include the following (dependent on site type):

  • Education
  • Job history
  • Number of connections
  • Quality of your connections
  • Location and seniority of your connections
  • History of online payment accounts
  • How you manage inventory and sales

3) A credit score is tabulated based on these criteria and you are approved (or not approved) for the loan accordingly.

While this approach to lending is very much in its early stages, its growth is pretty impressive. As reported by CNN Money, three online lenders are making impressive headway:

Lenndo has 250,000 members. It makes personal loans based on data collected from your Facebook account. If any of your friends have had a Lenndo loan, their payment history affects your credit score. If they’ve been a stellar borrower, paying as agreed, that’s good. If they’ve been late, Lenndo knows it and doubts your credit worthiness by association. If approved, Lenndo then reportedly notifies your friends if and when you are late for a loan.

Kreditech made 10 million loans last year. Like Lenndo, Kreditech makes personal loans based on data collected from your Facebook page. But Kreditech also includes Amazon and ebay. Their social data credit score is based on 8,000 data points, including ones that have nothing to do with social data, but does represent information that can only be gathered via an online application, such as whether you fill in the app with all caps (or no caps), whether you’re applying from a personal computer or one at work, and whether you actually take the time to read through Kreditech to gather knowledge about the loan.

Kabbage is on track to make more loans this year than the U.S. Small Business Administration. This online lender provides loans to small businesses, which will reportedly total 75,000 of them in 2013, based on social data collected from PayPal and eBay.

What do you think of this new lending model? Would you apply for a personal or business loan that’s based on social data (i.e., what you share, who your friends are, and other online activity)? Why or why not?

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