By Amy He  Updated on Tue Mar 26, 2013

Facebook Your Way to Creditworthiness

Facebook Your Way to Creditworthiness

Ksayer1 / Flickr source

These days, if you aren’t Instagramming your brunch meal, tweeting about the sun/snow/wind, or Facebooking a picture of yourself while skydiving, you’re not social-media interesting. (Extra points for being Tumblr popular and a Pinterest master.) While social media was originally used to keep up with friends’ lives, it has now become a bedrock upon which a person can build wealth and influence.

If you have 10,000 Twitter followers, brands may tap into your potential to sway conversation and build hype for products. 126,000 Instagram followers? Earn that all-expenses paid trip to Hawaii to blog and Instagram about the swank new mega resort you stay at.

The advertising and media industries are building entirely new models of business around the ever-growing phenomenon of social media. Good for those who can manage to reign in a massive legion of followers on social media however they’ve managed to do so.

But should social media be used to punish those who are not participatory or, to put it nicely, not a slave to their fail whales and Facebook accounts?

Some lenders might make it so. According to The Economist, many small lenders and bureaus are using “alternative data” (read: data from Facebook and Linkedin) to gauge a borrower’s potential.

Yes, it’s completely understandable for lenders to want to evaluate loan applications to make sure that the borrowers have the ability to repay said loans. In fact, skirting this process is what gave us our recession in 2008.

But should social media be used to judge potential borrowers?

It’s complicated. Social media in its infancy was a way to communicate with friends and let loose some creative juice that one couldn’t elsewhere. Now it’s almost a necessity to have accounts at some combination of the biggest outlets. In the media industry, not having a Twitter is a huge no-no. If you work in fashion and you don’t use Instagram, you might as well crawl into a hole and disappear immediately. In our sector, financial institutions are beefing up their social media practices so that they’re more easily accessible to customers.

But the ways in which social media is beginning to be used to directly gauge a person’s creditworthiness is unnecessarily punitive. It’s not the same as a job applicant not being very active on Twitter; it’s the difference between lending a potential borrower a possibly life-changing loan and not lending that money.

The Economist cites that, “As statistics accumulate, algorithms get better at spotting correlations in the data. Applicants who type only in lowercase letters, or entirely in uppercase, are less likely to repay loans, other factors being equal.” Say what now?

Not surprisingly, the quality of connections on Linkedin is another barometer that lenders can use to judge borrowers against.

Professional contacts on LinkedIn are especially revealing of an applicant’s “character and capacity” to repay, says Navin Bathija, the founder of Neo, a start-up that assesses the creditworthiness of car-loan applicants. Neo’s software helps determine if applicants’ claimed jobs are real by looking, with permission, at the number and nature of LinkedIn connections to co-workers. It also estimates how quickly laid-off employees will land a new job by rating their contacts at other employers.

“Character and capacity” seems like a rather broad and subjective way to qualify connections, especially connections that are boiled down to names and titles on places like Linkedin. I could be a janitor working at AIG and spruce the title up to “Waste Management.” Does that mean the person who knows me gets a bump in credibility just because they know me?

The problem with statistics

Statistics can discriminate against those who are less-educated and less well-off. They will less likely actively search for more connections or build upon old ones, if they even have those professional networks in the first place. According to information gathered by Online MBA, only 24% of Facebook’s users have a college degree, and the statistics for those using Twitter are almost exactly the same.

Linkedin is a network that highly favors those who have college educations. From the same infographic, 50% of Linkedin users have college educations, and that’s not surprising. People who are already on Linkedin are highly educated, and demographically-speaking, they will probably make more connections with other highly educated individuals.

Statistics are also incapable of recognizing how people use the Internet for personal reasons and how they use it professionally. I might always use lowercase letters when chatting with friends over Facebook, but that doesn’t mean I do it in professional communications. And what of the special language of the internet, where young people are perpetually snarky and sarcastic, and inclined to all-lowercase or all-uppercase dialogue? Should people be dinged for using too many emoticons too?

When Facebook was young, when most of its users were young, the biggest symbol of popularity was how many friends one could amass on Facebook. Nevermind the fact that the extent of two friends’ “relationship” was the exchange of two words all year at adjoining lockers. This is easily translatable to the adult world of Linkedin as well: how many networking events have you been at where some overeager sycophant shakes your hand a little too vigorously, slops his drink all over your pants, and then you get a Linkedin request and you’re expected to connect with him?

There are serial Facebook frienders and Linkedin requesters who are perfectly aware of what having a huge number of connects can get them. But this doesn’t make them more reliable or financially stable, and it would be questionable to judge his creditworthiness on numbers that can possibly hold very little meaning.

Statistics can be enlightening and we shouldn’t ignore the information that large data can provide financiers. But statistics are not all-understanding. Social media is enough of a bloated sphere as it is, it won’t help for people to have to game the system even more to create the false illusion of connectedness and reliability if that’s not how they really are. A good ol’ review of assets, income and family situation seems much more reliable an investigation than looking at whether or not people capitalize their letters in online conversations.

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  • lauraliMBT

    re: the algorithm, i wonder if typing like this would get balanced out BY TYPING LIKE THIS