Lenders May Be Looking At Your Shopping Cart, Facebook Friends
Online Activity Can Affect Credit Score & Ability To Get A Loan
“It is not clear consumers understand that their online social interactions can affect whether they have access to credit for a home or car loan…some lenders may not lend to consumers based on who they associate with on social media.” -July 22, 2019 memo from the U.S. House of Representatives Committee on Financial Services
For many Americans, credit score can make or break our ability to purchase a home, car, go to college, or get a business loan. Historically, this score has been based on factors like payment history, length of credit history, new credit accounts and credit utilization.
But as technology and Artificial Intelligence evolve, lenders and Credit Reporting Agencies (“CRAs”) are quietly looking deeper into your digital activities to help determine creditworthiness. Just how much deeper? Some are going as far as your online shopping habits, your alma mater, and who you’re connected to on Facebook.
“Alternative data,” refers to information not traditionally used by CRAs to calculate credit scores. It can include both financial and non-financial information, including:
- utility & cable bill payments
- internet browsing history and shopping habits
- educational or occupational accomplishments
- social network connections
- web scraping
- health information
This data is sourced from financial technology (“FinTech”) firms from borrowers, data aggregators, national databases and private parties.
Companies using alternative data argue that it helps widen the pool of potential borrowers to include those with no credit or outdated credit histories. An individual’s alternative data – which may include their social media connections, web browsing history, and health information – is combined with their FICO score to “better gauge [borrowers’] character and economic situation (Congressman French Hill, AR-02).
While this practice may be able to benefit “credit thin” and “credit invisible” consumers, concerns have been raised over the public’s awareness of this practice, the accuracy of the personal data used, and our inability to access or dispute any incorrect data that might be negatively impacting our creditworthiness.
According to a July 22, 2019 memo from the U.S. House of Representatives Committee on Financial Services, “it is not clear consumers understand that their online social interactions can affect whether they have access to credit for a home or car loan…some lenders may not lend to consumers based on who they associate with on social media.”
The Fair Credit Reporting Act of 1970 requires that consumers be provided adverse action notices if they are denied credit or charged more as a result of their consumer report information.
What You Can Do
- If you’re talking to lenders, ask about their underwriting process and what types of alternative data are used to help determine your creditworthiness
- Monitor your credit score & set up mobile alerts for changes in score
- Check if you were one of the 147 million Americans affected by the Equifax breach & file a claim
- Report any identity theft at identitytheft.gov
- Explore identity protection services like LifeLock, IdentityForce and ID Watchdog
- Beware of social media hacks and scams, change your passwords regularly and enable two-factor authentication so you can see if your account is being accessed from an unusual device
- Clear your browsing history & cookies regularly
- Consider privacy-protected search engines like duckduckgo
- Keep software and virus protection up-to-date
- Memorandum from U.S. House of Represenatatives Committee on Financial Services (7.22.19)
- United States Government Accountability Office Report to Congressional Requesters: Agencies Should Provide Clarification on Lenders’ Use of Alternative Data (December 2018)
- U.S. Department of the Treasury: A Financial System That Creates Economic Opportunities – Nonbank Financials, Fintech, and Innovation (August 2018)
- National Consumer Law Center Testimony: Examining the Use of Alternative Data in Underwriting and Credit Scoring to Expand Access to Credit (7.25.19)
- World Bank Group: Credit Reporting Knowledge Guide 2019
- Yale Journal of Law and technology: Credit Scoring in the Era of Big Data (2017)