If you are looking to apply for a loan in the near future, we suggest you take a close look at your online identity. Although the three credit bureaus are still the most popular way a credit score is established, some lenders — including traditional lenders — are now using new criteria to determine a borrower’s creditworthiness. This includes factoring in social media accounts, phone usage, and overall online identity. Some lenders use this criteria in addition to the traditional credit bureau and FICO scores, while other lenders are using these factors exclusively.
A FICO score calculates your risk as a borrower by using quantitative data while qualitative data is generated from your online interactions on social media, your online search history, and websites you tend to visit. This data provides lenders a new way to assess how likely you are to repay a loan.
We’ve listed the FICO score formula in order of importance below:
35% Payment History
30% Credit Utilization
15% Credit History
10% Credit Lines
10% New Credit
Social Media Accounts
Lenders are checking social media accounts to verify the person is who they say they are. They look for a complete profile, number of connections, quality of connections, and they scan for offensive posts that have profanity and/or a strong political affinity. Therefore you should be cautious about what you post on social media, especially if you are in the market for a loan.
For business loans, alternative lenders are known to use social media accounts to vet businesses and business owners before they lend money while other lenders may use an online identity to help make a decision on a borrower who does not have established credit. And it has been reported that FICO is considering including social media when calculating a credit score. So the next time you post on Facebook, tweet, or share a photo on Instagram, remember that lenders may be watching you.
Smartphone data can provide a lender with quite a bit of information about a borrower. Data companies now offer lenders access to different variables such as the time calls are made, the location of the caller, and frequency of calls. The data can be used to reveal if a borrower receives more text messages than they send, gauge how large their social network is, if they travel, and how often they charge their battery. Additionally, they can record the number of apps that have been downloaded to your smartphone and the usage of the apps. Combined, this data can be used to predict if a borrower will default on a loan.
Overall Online Identity
It’s best practice to search your name on the three popular search engines, Google, Yahoo, and Bing, periodically. You should look for, and clean up, any accounts or websites that have erroneous information about you and/or your business. We highly recommend you keep all of your social media settings set to ‘private’ and watch what you post and/or share on other websites or public social media pages. Sharing too much on social media can also put you at an increased risk for identity theft, learn more about that here.