What’s all this about social media influencing your credit?


Have you seen headlines about Facebook becoming a source of data for credit reports? In fact, Facebook actually applied for a U.S. patent on technology which allows them to analyze friend networks. And, one of the examples of use was for approving or denying a loan.

Or maybe you’ve seen this oft-quoted FICO CEO Will Lansing on the subject in a recent Financial Times article:

“If you look at how many times a person says ‘wasted’ in their (Facebook) profile, it has some value in predicting whether they’re going to repay their debt.”

Financial companies have also tested using social media to detect fraud and identity theft, too.

But, no, Facebook is not getting in to the credit rating business and the credit bureaus are not using Facebook data now

What is true is that credit scorers are looking for alternative sources of data in addition to credit reports to help score people with no credit and those whose credit is stagnant due to a negative collection or default dragging down their credit score for many years.

In a FICO press release earlier this year, FICO, LexisNexis Risk Solutions and Equifax announced they were looking at ways to include other types of data sources to solve this problem. But none of it is social media-related.

The press release states, “… alternative data such as property records, telecommunications and utility information can reliably be used to score 15 million consumers who do not have enough credit data to generate FICO scores.”

The new thinking is that people who pay their bills on time may be currently unbanked, without a credit card or with a black mark on their credit report in the past, but may still be creditworthy.

Using Facebook as a credit rating tool would be largely illegal

Facebook posts, Twitter tweets and Instagram pics have no effect on your credit rating or credit score and FICO even drew up a 6-point criteria in a recent industry whitepaper for allowing an alternative source of data for their pilot program.

Some points include that the data source must comply with The Fair Credit Reporting Act. This law says consumers must know exactly how social media sites would be using their profiles for credit ratings, consumers must be able to dispute the data and also that denying credit based on social media must be defensible and fair. And, outside traditional credit reports must apply to the majority of consumers and be consistent in nature, which all social media use is not.

Your social media profiles can still negatively affect you financially in other ways

Undesirable qualities discovered in social media profiles can affect your finances negatively, for example, during a job search, when performed legally by the human resources department, which results in not getting that job. In fact, according to a 2013 survey by the Society for Human Resource Management, 77% of human resources professionals surveyed used social networking sites to find and recruit applicants and 20% of 651 respondents also used social networking websites to research job candidates more thoroughly before extending an offer of employment.

The college trail (including grad school, law school and medical school) is another time where your application for admission or scholarship could be declined. In the 2014 Kaplan Test Prep Social Media Use Survey, Kaplan found 35% of college admission departments admitted officially to searching applicants’ social media profiles, and during that time, 16% found something that negatively impacted an applicant’s admission chances.

The good news on alternative data sources for credit ratings you can use now

If you are currently unscoreable because you have no credit or you are in the position of digging yourself out of a long-lasting negative collection or default on your credit report, there’s more you can do, based on FICO’s test program.

Always honor your lease and pay the rent on time. Pay telecommunication bills such as your wireless carrier, landlines, satellite and cable services and your utility bills such as the electric or water on time. This way, your positive payment history can be used to extend you credit in the future, whenever that becomes possible.

Bottom line about social media: Whenever you connect with a business or individual on a social media site, you are giving them permission to see your photos, your posts, your statuses, your videos and any other information about you hosted on the sites. Sometimes you are giving this permission just by logging in so it’s a good idea to be guarded what you post to social media in general.

Posted in Credit Score
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