Stories of employees terminated for bad behavior on social media are rampant. And there are undoubtedly countless cases of that “perfect” employee who was never hired because of a telling photo or morally questionable tweet that calls their judgment into question. Employers and human resources departments use social media as just another information source to bolster hiring and firing decisions. In a similar light, now some alternative lenders are looking at social media as a way to help them determine an applicant’s creditworthiness.
One Piece Of The Puzzle
Social media won’t replace a FICO credit score; however, social media credibility can be a useful tool for determining whether to lend to applicants with missing or marred credit histories. Considering social media behavior can be especially useful when working with Gen Y and Millennials, whose youngest members might not have developed much credit.
Community development credit unions can use social media to find information about a loan applicant with spotty credit. An in-depth search of Facebook or Twitter provides insight into nonfinancial activities that convey responsible behavior. For example, members that post pictures of themselves volunteering with United Way or at their local community center, church, or synagogue likely have a larger stake in the community — and are therefor less likely to skip town — than a member who boasts about their transient lifestyle.
A Social Credit Score
International startup companies like Lenddo, Neo, Kreditech, and Movenbank are looking to social media to determine the credit worthiness of loan applicants, and they’re making a splash in the financial services pool. Many major trade publications, including The Economist, The Wall Street Journal, CNN Money, and American Banker, have covered them.
Founded in 2011, Lenddo asks users to link social networks — including Facebook, LinkedIn, and Twitter — to its site to create a “LenddoScore” social credit score. The LenddoScore measures character on a scale of 0 to 1,000, with 1,000 being the most trustworthy. Lenddo builds the score by looking at a borrower’s social media relationships, connections to other Lenddo users, and Lenddo loans history. If a borrower makes a Lenddo loan payment early or on time, their own Lenddo score increases and brings with it the scores of people with whom they’re connected.
Lenddo is the world’s first online platform that helps the emerging middle class use their social connections to build their creditworthiness and access local financial services.
Lenddo offers low-balance, short-term personal loans for borrowers in Columbia and the Philippines; however, the company does have a New York office. An average LenddoScore for a Lenddo Philippines user will earn the borrower a 36% interest rate for 12 months on a $1,000 loan. That rate might seem exorbitant for an American borrower, but average loan rates differ depending on the local loan market.
Four Ways To Use Social Media To Evaluate An Applicant
Alterative lending companies have varying niche offerings, but the metrics they use to judge creditworthiness can be useful across the traditional lending landscape as well. For example:
Professional contacts on LinkedIn indicate whether an applicant’s job is real, says Navin Bathija, founder of Neo, a startup that assesses the creditworthiness of car loan applicants. By looking at an applicant’s LinkedIn contacts at other companies, the lender can estimate how easily the employees will be able to find a new job if they are fired, Bathija told The Economist.
With the permission of applicants, online small business lender Kabbage accesses their PayPal and eBay accounts to obtain real-time sales and delivery data. Kabbage also checks a company’s Facebook and Twitter channels to see how it leverages social media for marketing and customer service, Kabbage co-founder Marc Gorlin told CNN Money.
Facebook and Twitter have become so ubiquitous that it raises a red flag if an applicant doesn’t have an account, says Ken Rees, CEO of Think Finance, an alternative online lender. Rees told American Banker that not having at least one of these accounts is like walking into a brick-and-mortar branch without a driver’s license.
According to Douglas Merrill, founder of online lending company ZestFinance, applicants that type only in lower-case letters or ENTIRELY IN CAPS are less likely to repay loans, other factors being equal. The American lender knows what it is talking about; Merrill told The Economist ZestFinance’s default rate is roughly 40% lower than that of a typical payday lender.