Loans Could Be Rejected or Approved Based on Facebook Friends

Could your Facebook friends change your credit score?

A new trend was emerging in 2013: lenders would be giving loans not just on your credit score, but also on the kind of friends you have on Facebook. Simply put, if you have friends who show irresponsible behavior financially, you may not get the loan you are asking for. Your friend might be in deep debt buying numerous Coach purses or Burberry jackets — that financially unsound decision of theirs would impact you directly. Financial companies would be assessing not just your creditworthiness, but also the financial status of your friends, to draw a whole picture of you.

We always knew that a person is often judged by the company he keeps — but to think his loan for the car or house could be disapproved because he interacts with a financially irresponsible person on Facebook? Well, that's the new trend of this ever-changing digital world.

What did CNNMoney report?

CNNMoney reported on August 26, 2013, that one such company, Lenddo, determines if you're friends on Facebook with someone who was late paying back a loan to Lenddo. If so, that's bad news for you. It's even worse news if the delinquent friend is someone you frequently interact with.

"It turns out humans are really good at knowing who is trustworthy and reliable in their community," said Jeff Stewart, a co-founder and CEO of Lenddo. "What's new is that we're now able to measure through massive computing power."

A German company called Kreditech said it uses up to 8,000 data points when assessing a loan application — including data from Facebook, eBay, and Amazon accounts, and even the manner in which a customer fills out the online application. Fill it out typing in all-caps (or with no caps), and you're knocked down a couple of pegs in Kreditech's eyes.

Who else was doing this?

Kabbage, Lenddo, and Kreditech were some of the companies that had already started giving — or rather rejecting — loans based on your social circle. All these companies are online financing companies. They don't operate like a bank; they just engage in giving out loans. At the time, most of these companies had their operations outside the USA.

So while for people in the USA their social circle was not yet being analyzed for creditworthiness, time was not far when this would become the case there too.

What did this mean for Americans? A cautionary tale about the company you keep — at least digitally.