That Facebook Post Could Ruin Your Credit

Kirsten Salyer writes about consumer culture for Bloomberg View and is the site's engagement editor. She has also written for Condé Nast Traveler, Texas Monthly and Houston Community Newspapers. She has a bachelor's degree in journalism and international studies from Northwestern University.
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Will that racy Instagram picture cost you a loan?

More lending companies are looking to social media data to determine the creditworthiness of borrowers, the Wall Street Journal reports. So far, this practice is typically used by start-ups that grant smaller loans, but Fair Isaac Corp., a big supplier of credit-scoring information, is also considering incorporating the data in the future.

Social-media data might offer additional insight to lenders about borrowers and could reveal discrepancies between what they state on loan applications and what they share online. Jeff John Roberts at Gigaom suggests the quality of a person's social networks could also provide an extra measure of creditworthiness: For example, someone with a small, tight network with lots of interactions may appear to be a better loan applicant than someone with a large network and weaker ties.

But are social media profiles and posts really the best indicator of a good borrower? Consumer advocates worry that attention to social-media profiles might increase the likelihood that some borrowers, including businesses, would be unfairly denied credit or be forced to pay higher interest rates.

There's also concern about lenders misinterpreting or failing to verify the information associated with a potential borrower's social-media identity. Fake or joke accounts could hurt scoring. Under the Fair Credit Reporting Act, if a consumer disputes his or her credit-history information, consumer-reporting companies must verify its accuracy. Companies using social media don't have to check that information. Users could also create accounts under false names to avoid this scrutiny.

Regulators aren't policing the use of social media data in credit scoring -- yet. The Consumer Financial Protection Bureau is watching, the Journal reports. As with most cases in which social media use causes shifts in an industry, regulation will probably follow practice. The Securities and Exchange Commission allowed for the use of social media to announce corporate information last year after Netflix Inc. Chief Executive Officer Reed Hastings posted numbers about the service's video viewing hours to his personal Facebook page.

By now, most people seem aware that what they post online can follow them into the professional world. It's commonly known that employers and college admissions officers check the social media profiles of job candidates and prospective students. According to one study, about 71 percent of users self-censor what they post by writing out an update and then deleting it before hitting send.

Tracking social media posts as a measure of creditworthiness also raises some questions about how users would approach their actions on these networks if they knew they were being scored. Should I start replying to all those Facebook posts to show that I'm reliable?

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.