Social networking: Your key to easy credit?
Creditors turn to Twitter, Facebook for social demographic info
You probably don't analyze the chatter or quality of your social media connections, but creditors may be doing just that.
In their quest to identify creditworthy customers, some are tapping into the information you and your friends reveal in the virtual stratosphere. Before calling the privacy police, though, understand how it's really being used.Data rich discussions
According to NielsenOnline, 67 percent of the global online population uses Facebook, Twitter, Linkedin or a similar social media network to stay in touch with friends, grow their business or just have fun. If you're among them and your settings are turned to "public," who you're talking to and what you're discussing is available to those wanting to sell their wares -- and that includes banks and other credit issuers.
"It's a marketing trend as opposed to a credit score trend," says Joel Jewitt, vice president of business development of Rapleaf, a San Francisco, Calif., company specializing in social media monitoring. Rapleaf hunts and gathers social networking transmissions, turning the conversations you have in your network into consumer profiles called social graphs. These graphs provide companies with insight into behavior patterns: what you like and dislike, want and don't want, do well and do poorly.
We use social chatter as a way to bring risk down. It's a wealth of information about a person.
|-- Rob Garcia
The Lending Club
Pretty much everything you and your network reveal may be compiled, including status updates, "tweets," joining online clubs, linking a website or posting a comment on a blog or news website.
"In the past, marketing products to people was primarily done via demographics -- age, sex, location, education, etc.," says Jewitt. "That data isn't always so accurate, though." Demographics have given way to multidimensional behavioral targeting that allows creditors to draw conclusions about what type of credit customer you maybe. The idea is "like follows like" -- so if your online friends express curiosity about something, so too may you, whether you say so or not.
According to Michael Gorman, vice president of Acxiom, a company that builds and maintains databases creditors use to market products, joining social networks can work to your advantage. "A big part of what credit card companies do is make decisions about what to offer different people -- who to send a balance transfer offer to or offer credit protection."
Jesse Torres, president and CEO of Pan American Bank in Los Angeles, agrees that Rapleaf and other online information aggregators fill a need within the banking community. "They're able to scour the social media universe. They are constantly listening and reporting back." By knowing what people are saying, financial institutions can make the most of their marketing dollars, says Torres, and provide consumers with what they want.
Lowering lending risk
Another reason credit issuers are looking to this data is to reduce lending risk. Social graphs allow credit issuers to know if you're connected to a community of great credit customers. Creditors can see if people in your network have accounts with them, and are free to look at how they are handling those accounts.
The presumption is that if those in your network are responsible cardholders, there is a better chance you will be, too. So, if a bank is on the fence about whether to extend you credit, you may become eligible if those in your network are good credit customers.
It's rotten, it's really not something they should be doing. They may be gaining information from people who are naive and not understanding how their profiles are set. It verges on privacy violation.
|-- Linda Sherry
"Credit card companies have been stung very hard during this downturn, and they're going to work that much harder to avoid extending credit to people with a high level of predictable losses," says Ken Clark, author of "The Complete Idiot's Guide to Boosting Your Financial IQ." "Social graphs can pre-emptively cut the amount of charge-offs by not giving high-risk people a card. It may translate into hundreds of millions of dollars industry wide."
The Lending Club, a peer-to-peer lender, uses multiple sources of "social information collateral" for its decision-making processes. According to Rob Garcia, senior director of product strategy, the company incorporates social media and network information into its identity verification and fraud detection mechanisms.
"We use social chatter as a way to bring risk down. It's a wealth of information about a person," says Garcia, who gives the example of a Facebook user who posts a home address. "If a person says he lives in a different area than the one on the application, it could be a flag. But if it matches, it greatly increases confidence."
Having a robust online social network can also expedite loan acceptance. "When people have large networks, they get funded two to three times faster than without," says Garcia. Why? "We notice that good credit people invite good credit people; bad invite bad."
To be clear, creditors aren't accessing the credit reports or scores of those in your social network, nor do those friends affect your personal credit rating. Jewitt asserts that the graphs aren't being used to penalize borrowers or to find reasons to reject customers, but quite the opposite: "There is an immediate concern that it's going to affect the ability to get a financial product. But it makes it more likely "that it will work in their favor," says Jewitt.
Not everyone in the industry is jumping on the bandwagon. "It's difficult to make a judgment about an individual's credit based on the people around them," says Gregory Meyer, community relations manager for Meriwest Credit Union in San Jose, Calif. Meriwest only assesses credit report and application data to make lending decisions. "[Social media] is a great way to keep up with what my 10-year-old nephew is up to, but it doesn't have a place in the credit process." Still, he does say that business loans may be an exception. "I can see how Facebook would come into play -- it would be useful to look at comments about a person's business, see what the complaints are and how they respond to them."
Linda Sherry, spokeswoman for consumer advocacy organization Consumer Action, accepts that social media data could help with marketing, but doubts its efficacy in risk management. "When you get outside of a personal credit report, it doesn't seem like social graphs would help anyone," says Sherry.
All of this gives way to a lot of worry about how what you make public can be used and who will see it. Jewitt says institutions using Rapleaf's social graphs have made it clear they want to use the data positively.
The general use of data is the subject of hot debate in Washington.
|-- Jules Polonetsky
Future of Privacy Reform
Still, concerns about how a company uses social media information may be justified. What you divulge can have unintended impact. "We've seen this with applicants not getting jobs and employees getting fired for their Facebook and Twitter-based escapades," says Clark, "so we shouldn't imagine this to be any different."
Consumer advocate Sherry, however, says this about personal-though-public conversations being surreptitiously gathered and distributed. "It's rotten. It's really not something they should be doing. They may be gaining information from people who are naive and not understanding how their profiles are set. It verges on privacy violation."
Jules Polonetsky, co-chair and director of Future of Privacy Forum, supports behavioral marketing but considers this an extreme use of if it. "It's shocking to users. It goes beyond the kind of data use that people feel comfortable with." More, he says, this application of behavioral marketing risks driving legislative action. "The general use of data is the subject of hot debate in Washington. The Federal Trade Commission is examining its view of behavioral data, trying to get to the appropriate rules. The entire future of behavioral marketing use is up in the air and this could upset the apple cart."
What social network users can do
If you're not wild about the prospect of being prospected, take steps to guard your privacy. "I think it is crucial that everyone visit the privacy notices for the sites they use, read them, and change their settings to limit who can see their information," says Clark. "For example, on Facebook, you can change your privacy settings so that only your acknowledged friends can see the vast majority of your information." You can also enable "private filtering" on your browser. Do so and your activity will be entirely out of the Web profiling system.
Scott Stevenson, president and CEO of EliminateIDTheft.com has further tips:
- Don't accept invitations to your social networking site from people until you check their profiles out first.
- Be acutely aware of what you write. Don't make public anything you don't want public.
- Take an annual inventory of all your social networking sites and delete people and information that can potentially damage you in the eyes of a creditor or employer.
While Jewitt is firm that credit issuers are using your online chitchat for marketing purposes only, he agrees that consumers should be cognizant about what they expose online. Ultimately, he says, "The custodian of the information is you."
So while you have the power to opt out of chatting on social media networks entirely, don't forget that one of the beauties of social media is that it allows people and organizations to find you. Go offline or keep your settings totally classified and you reduce that valuable connection benefit.
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