When Banks Use Facebook Friends To Determine Your Credit Score

http://www.betabeat.com/2011/12/13/as-banks-start-nosing-around-facebook-and-twitter-the-wrong-friends-might-just-sink-your-credit/

by kunle • 15 years ago

128 152 15 years ago

betabeat.com

bproper• 15 years ago

So in a scenario where social credit becomes a part of your economic health as an individual, what happens to friends and family that declare bankruptcy? They become some sort of pariah, avoided on Facebook and Twitter?

kstenerud• 15 years ago

Or helping someone becomes a dangerous proposition, because they'll likely add you to their social graph, dragging you down. It'll be just like those social clubs that determine what you're allowed to do in your private life and who you're allowed to hang around if you wish to remain a member.

Stratification would occur automatically out of fear, as each clings desperately to their social position and tries to keep their social graph pure now that it has real-world consequences.

sukuriant3• 15 years ago

This right here is my single greatest fear of banks knowing/using this information. If I befriend an undesirable (because I see past society's assumptions/the rough times this person has had in their life/whatever), or I care for an undesirable, I am punished. Of course, I would have to weigh if it's worth it (it probably is), but the fact that things like this may have to be considered is just depressing and wrong.

Heaven help the preacher that friends his congregation. Not everyone comes from a rosey past.

jedberg• 15 years ago

Back in the days of Old Man Potter, the bank solved this problem by being local and the banker actually was your friend, so he already knew your social graph.

beagle32• 15 years ago

Yes, he knew your social graph. But as for being your friend, ... well, ....

rdtsc2• 15 years ago

I guess if he wasn't your friend he also wasn't your banker for long.

patio116• 15 years ago

Yes, but that banker used heuristics like "Tom is a good white Christian who goes to church every Sunday, of course he is good for the money" and this algorithm can be proven not to, even if it comes to very similar credit decisions as Bill the Biased Banker.

This is part of the reason why credit scores took over the world in the first place: they're demonstrably blind to protected classifications. (They're also more accurate than Bill the Biased Banker and orders of magnitude cheaper to run and execute virtually instantly at 3 AM in the morning, but if their only feature was "As effective as traditional underwriting but immune to anti-redlining legislation" they'd still have taken over the world.)

lurker143• 15 years ago

https://en.wikipedia.org/wiki/Disparate_Impact

benatkin• 15 years ago

I think half of my facebook friends are people whom I don't know in real life. On twitter it's probably 80%. Many of my replies and retweets are for people whom I've never met. So they won't find out a lot unless they get clever, which could be time consuming.

danielharan• 15 years ago

I'd like to see actual evidence that a few bad friends are a good indication of your own credit rating. Frequency of posts, number of new friends/contacts in the last month, grammar/spelling -- all might be better correlations to your paying debts.

callahad• 15 years ago

My first reaction: "Why would I volunteer that information?"

Followed quickly by: "I don't have to; my less-savvy friends would. And I'm in their graph."

At which point, it's in my interest to disclose my own social graph, so that the bank sees that I'm actually connected to responsible people, too. Which means betraying those individuals' presence in my graph. Gah!

oneplusone• 15 years ago

or just get rid of Facebook.

jisaacstone• 15 years ago

But they still keep all my data, yeah?

ajross• 15 years ago

And cut yourself off from the people you interact with there. Social networks have very high value. You can't expect people to throw them out -- they love them. This is why people talk seriously about regulating privacy handling, to prevent this sort of abuse.

khafra2• 15 years ago

...and be the guy without a credit history. Pretty high risk; what are you trying to hide?

mirkules• 15 years ago

"Followed quickly by: 'I don't have to; my less-savvy friends would. And I'm in their graph.'"

That's actually a very good point. I'm not too worried about the stuff I write about on my own Facebook wall -- I know it's set to private, I don't rant, put offensive material, etc. What scares me is what other people write about me on their own walls with God-know-what-kind of privacy setting, the pictures that they tag of me, etc. Even if everything is set "Fort Knox" mode, you're still just one Facebook bug/vulnerability away from it all being revealed.

There was a BlackHat talk this summer called "Faces of Facebook" by Dr. Alessandro Acquisti [1] where he extracts a person's SSN just from an image of their face (by cross referencing Facebook and other things). Scary stuff.

[1] http://www.heinz.cmu.edu/~acquisti/face-recognition-study-FA... (PDF)

jarek3• 15 years ago

After so many privacy setting changes, I see no reason why the guideline would now be anything but: don't put anything on Facebook you wouldn't want being made public anymore.

I mean, I have stuff on my Facebook that I'd rather keep to my group of friends, but nothing on there that absolutely has to remain within that group anymore.

mortenjorck• 15 years ago

My first reaction was simply that I'd find another bank the moment they required me to connect my Facebook account.

Followed quickly by the realization that circa 2016, I might not have a lot of banks to choose from.

rickdale• 15 years ago

People that use facebook don't care. They would rather use facebook than have privacy, thats the bottom line. To them the benefits on facebook outway the problems.

For most people if you told them they would die in 10 years if they continued to use facebook, they would still use facebook. For a lot of websites today and apps, you can't even login or do anything without a facebook profile.

Find me one person that is outraged and dropping their facebook account in light of this information.

On top of all that banks aren't lending money nowadays anyways.

kayoone• 15 years ago

Valid point, but still accepting to disclose some private info is still somewhat different to accepting to die in 10 years time for using a service. If that were the case, FB would be gone in no time and G+ would finally rise ;)

untog• 15 years ago

People that use facebook don't care.

That's pretty obviously not true because "what they care about" can change a lot.

"Facebook is using face recognition!" = OK, no huge deal. "Banks are using your info for credit scores!" = a big deal.

If someone has those responses they aren't being inconsistent. "Privacy" has a variable definition, so "Facebook users don't care about privacy" makes no sense.

lysol• 15 years ago

The article is alarmist for sure. I highly doubt these startups centered around this activity will outlast the inevitable death of the platforms they're attached to.

RexRollman• 15 years ago

"The first thing Lenddo asks for is a Facebook account; then it wants access to Gmail, Twitter, Yahoo, and Windows Live."

Umm, pardon my French, but fuck that.

herge• 15 years ago

How much is access to your Facebook account, Gmail, Twitter, etc, worth?

What happens if the bank offers to lower your rate if you give access?

What happens if you cannot find a bank that gives you a loan without insisting that you give them access to your accounts?

nupark22• 15 years ago

> What happens if you cannot find a bank that gives you a loan without insisting that you give them access to your accounts?

This is what I find so frightening about the Facebook-login-only web services.

It's the first step towards the widespread requirement of a massively asynchronous information+value exchange between customers and businesses.

xer0• 15 years ago

"What happens if you cannot find a bank that gives you a loan without insisting that you give them access to your accounts?"

Then you either go to another bank, or maybe you don't get the loan from any bank. If you don't get the loan, you change your plans to save up cash, or you change your goals.

Either most people will go along with this (likely), or banks will have to decide if a smaller loan pie is good business.

citadrianne• 15 years ago

It also tweets and updates to Facebook -- 'I'm using Lenddo!' -- on your behalf when you register without asking first. When I asked them why, they said that was a cultural difference -- that people in the Philippines 'appreciate' that feature.

rkon2• 15 years ago

Who wants to buy an invite to my high-roller social network? We promise to weed out those "untouchables" who are losing their jobs and homes!

Honestly, it would only be a matter of time before we saw entirely fabricated social groups. Unless social networks start requiring photo ID/SSN to join.

Not to mention the potential this would have to further skew wealth distribution in favor of the rich while strengthening the barriers that already prevent upward economic mobility.

snorkel• 15 years ago

Reminds me of long-forgotten blog post I read where someone claimed they were able to raise their credit score by subscribing to affluent lifestyle magazines, luxury catalogs, charging small purchases from Neiman Marcus and Sacs Fifth ... just creating a trail of data that would give the appearance of being in a higher income bracket produced a lot of interesting side effects.

fleitz• 15 years ago

The thing most people don't realize is that your credit score is mostly an indication of how much the bank can make off of you, and your income. High income basically always gets you a high credit score, and making minimum payments also gets you a high credit score. Lets say two people who both have the same income, the person who pays their debts off fastest will have the lower credit score.

It's pretty easy to get a high credit score by maintaining a balance on a high interest credit card.

mbesto• 15 years ago

Every system that is created will have a greater or more complicated system simply created in order to game it.

benjvi• 15 years ago

Articles critical of the loss of privacy that comes along with social media often come up with this type of scaremongering. 'If you know someone that has bad credit, then you won't be able to get credit either'. Well, if your relationships do actually effect your ability to repay your debts, then banks would be right to be at least a little more wary of giving you credit - amd you should not be trying to overextend your credit.

I would have said that the undesirable practices that are mentioned - such as redlining - are the result of using crude, discriminatory heuristics rather than the result of having too much data about customers. This isn't necessarily a bad development - it could enable banks to lend to more marginal borrowers if they could see they had a strong support network. Clearly, if you have a good conventional credit record, then your social credit will hardly matter. Banks that use this new source of data stupidly won't do well.

DannoHung• 15 years ago

If you want a picture of the future, imagine a boot stamping on a human face — forever

JofArnold3• 15 years ago

I'm probably going to go to downvote hell for this, but I need to say it; I'm massively disappointed startups are still using their energy and talents to service the loan industry. It's 2011 - have we learnt nothing from the past 3 years? Build value, don't destroy it.

dantheman3• 15 years ago

Selecting qualified people for loans is a valid industry that promotes growth. The goal is to loan the right amount and that the person will pay it back. If you can do that accurately and loan to people who would fail normal tests then you've created significant value.

JofArnold3• 15 years ago

What if the person in receipt of the loan was selected with perfect accuracy but then his/her circumstances changed due to no fault of their own?

No loan is a "good" loan. Loans facilitate the reallocation of money. No net value is created and for the majority "value" decreases in fact.

I'd challenge the "leads to growth" assumption too but I'm on iPhone and I don't wish to hijack the thread. Essentially, it does not lead to sustainable growth for the majority (or the economy for that matter)

nchuhoai• 15 years ago

I Agree with dan. another way to look at loans is like funding for your startup. Just like the credit score, vcs give you a score on how likely it is that you will yield a return. There is not anything wrong with that. This is a fundamental part of any economy. Investment for people who can use it to create value.

2008n just showed what happens if you don't access the score correctly.

mooki• 15 years ago

This goes both ways. If it becomes commonplace, there will be a business in SEO'ing your social media profile. I wouldn't be surprised if a large portion of facebook will consist of networks with good credit scores all friending eachother and blogging about savings tips.

nostromo• 15 years ago

The social graph is much easier to fake than paying your bills on time: Unfriend, apply for mortgage, refriend.

However this does sound an awful lot like collective punishment -- and may even open the banks up to discrimination lawsuits.

jellicle• 15 years ago

But now the data available to the credit bureau consists of you being friends with others, then unfriending them just prior to applying for credit. Which sounds like an intent to deceive, which is worth -200 points on your credit score. You didn't think unfriending people erased your historical association with them, did you? "Deleting" data is so 1995. Facebook has never deleted anything, and they're not going to start. Google may be partially anonymizing some old data, but my guess is it isn't really anonymous - probably Google can reconstruct everything you have ever searched for, ever.

rajat• 15 years ago

The implicit assumption here is that judging your credit score using your social graph will give the wrong answer: as in either claim you are a deadbeat when you're not, or claim you are trustworthy when you're not.

But, judging from other stories here and elsewhere, your social graph does seem to yield mostly accurate information about you. So, most likely, you are likely to be tagged as a deadbeat or not correctly.

More meaningful, I suppose, is for those of us that are very careful about social media. I have a Facebook account, but use it very little. However, it has come in very useful in that long lost friends have been able to get in touch with me through it. I must admit, I have never really initiated that myself (ie. go search for someone). So, am I likely to be judged incorrectly solely on the basis of being a social media avoider; that is, are the banks going to say hey ignore social media stuff for this guy, or are they going to say, loners avoid social media and loners are likely to be bad credit risks?

I am definitely a member of the group that almost instinctively react negatively to the use of social media for data mining like this. I am also aware that I'm old enough that I might just be an old fuddy-duddy. I wonder how many articles were written about the loss of privacy when telephones started becoming popular and when the white pages were introduced.

im3w1l2• 15 years ago

People will also be incentivized to "prune" their social graphs of undesirables.

patio116• 15 years ago

Some days I hate being right.

http://news.ycombinator.com/item?id=954276

[Edit: The article says the ultimate nightmare is the banks using this to access data that they can't ask you for on forms. That is unlikely. What they'll do instead is do exactly what credit scoring does: develop an algorithm which a) improves assessment of risk and b) is totally, verifiably blind to all protected classes which c) happens, as a side effect, to correlate very strongly with membership in certain protected classes.]

dman• 15 years ago

Its days like these that explain why so many of us pay close attention to what you have to say. :)

koenigdavidmj• 15 years ago

I bet the people at working at The Onion do too.

gacba• 15 years ago

The problem with trolling my FB account for understanding my behavior is that people fall into roughly 3 categories:

- Old work associates

- School friends

- Family and close friends

If I have a deadbeat cousin who also happens to be the black sheep of the family, they may penalize me unfairly for his behavior. Or if I used to be in school with someone who is now doing poorly financially, I get whacked. Now consider that this person might have been my close friend in 6th grade, but we grew in different directions. Where is the relevance here? Where's the logic in that?

Pulling this info from social graphs as augmentation is a whole lot different than simply creating a full profile from your graph in the absence of real financial data.

Lagging or not, how I paid my credit cards over the past 5 years is going to tell you a lot about how I treat money. Not so much about what I'm tweeting tomorrow.

roc4• 15 years ago

Social grading gives them free reign near-uniformly depress credit scores to make everyone appear less credit-worthy.

This allows them to increase average rates and maintain low lending volume, under the cover of credit scores that appear low in historical context. When it behooves them to begin lending again, their lending to people with low(-in-historical-context) credit scores will be paraded about as virtue.

There is simply no-one who is that far removed from a black sheep or friend/family member who's fallen on hard times. Not even during good economic times. Certainly not given the way people friend one another on these sites.

Any grading of people based on social connections will drag nearly everyone down, potentially in a self-reinforcing cycle.(higher rates push more people into worse economic situations, lowering their credit score, reflecting negatively on their friends who now pay higher rates, etc)

esrauch• 15 years ago

> they may penalize me unfairly for his behavior.

What you are describing is just a fundamental quality of these types of risk assessment algorithms. For example, males pay more for car insurance than females, because there is a demonstratable correlation between being a male and the insurance company paying out more money to you.

This is true even for an individual that has been in absolutely no accidents. Statistically it is true that a male that has had no accidents still has a higher expected value for insurance payouts in the future than a female that has been in no accidents.

You as an individual is an unknown quantity that they cannot absolutely determine. There may have been completely legitimacy reasons why you failed to pay credit cards that cannot possibly occur again in your life, you should equally complain about that not being taken into account.

No one can perfectly predict the future (if they could, insurance would be pointless). They can only use information that they have to imperfectly model the future; both who you tweet and previous credit card payments are imperfect signals for what will happen in your future. It is true that how you paid your credit cards in the past is a much stronger singal; it is absolutely impossible that any credit evaluation is taking who your cousin is and your personal history as equals. Their models take into account that who you tweet is a much lesser indicator.

sliverstorm3• 15 years ago

If the algorithm is good, it will have a leniency for having a black sheep in your family- seemingly everybody does, and numerous demonstrably low-risk individuals I am sure have their black sheep as well.

If the algorithm is good.

dextorious8• 15 years ago

"""If I have a deadbeat cousin who also happens to be the black sheep of the family, they may penalize me unfairly for his behavior."""

Yeah, like you're so much better than Matt "Glue Sniffer" Jameson, now that you made it in the big city. Really, is Des Moines as nice as you're making it out to be?

Anyway, when are you coming back to Idaho, Jim? We miss you!

P.S Matt is in jail again, if you can chip in for the bail, send me a message in FB.

lotu2• 15 years ago

Social graphs can show these things. For example you deadbeat cousin who is a black sheep in the family probably has a very different circle of friends outside of your family than you or most of your family does. As such he could be identified as an out-lier. In fact I would not consider these algorithms worth while if they didn't do that.

I doubt this would replace a credit score but it may argument it. Or it might lead to a lender making further inquires. For example if you've been tweeting about how you "hope to blow tens of thousands of dollars in Vegas" it seams reasonable that would make a lender worry about lending you.

In the end I don't see these algorithms are very different from a bank in a small town where the manager personally knows everyone in the town.

sliverstorm3• 15 years ago

Are you saying you fear they will develop algorithms that are non-discriminatory but produce results that essentially mirror discriminatory results?

patio116• 15 years ago

"Fear" wouldn't be the word I would use, and I wouldn't say they're mirroring discriminatory results so much as approximating reality with some level of error. Reality is not egalitarian. Good approximations of reality will probably not be egalitarian, either. A nakedly discriminatory heuristic might be a better approximation of reality than "everyone is equal." A non-discriminatory heuristic might be a better approximation than that and also have the side effect of falling very unequally across arbitrary groupings of people.

yummyfajitas2• 15 years ago

Why is more accurately assessing credit risk without discriminating by race the "ultimate nightmare"?

One example - down payment size for home mortgages. A low loan/value ratio strongly affects risk (a), it's verifiably blind to all protected classes (b) and is also correlated with certain protected classes (c).

Is it the "ultimate nightmare" for banks to use the loan/value ratio while evaluating creditworthiness of mortgage applicants?

darksaga• 15 years ago

Why are we all assuming people would naturally have a large social media presence in the first place?

If I have a 790 credit score and no Facebook account, do I get a higher rate? Now you're looking at discriminatory practices based on the fact I don't engage in social media.

This is a VERY slippery slope these industries are going down.

khafra2• 15 years ago

The purpose of a credit score is to serve as a discriminatory practice.

cstross2• 15 years ago

My social graph doesn't tell you anything useful about me.

What it tells you about is people who like the books I write.

Someone sends me a friend request? I auto-friend them unless they're an obvious spambot. It doesn't mean they're my "friend" or someone I know IRL; probably 80% of my FB "friends" live in parts of foreign countries I haven't visited. I don't use FB for social purposes, I use it for marketing communications.

(EDIT: Paradoxically, it turns out that many of my real friends aren't hooked up to me via FB. And none of my relatives -- except one nephew -- even have FB accounts.)

This wouldn't be a problem except for Zuckerberg's sociopathic insistence that we all have just one unitary identity. Groan.

patio116• 15 years ago

The wonderful, terrible thing about this is it literally doesn't matter whether the social graph says anything useful about you. It only matters that it says something which, when added to existing data sources, is a tiny sliver more accurate than the bank's internal risk scoring when aggregated over 100,000 people who happen to include you in them. If you happen to be misjudged by the algorithm, that isn't in itself a problem.

dextorious8• 15 years ago

"""My social graph doesn't tell you anything useful about me."""

It doesn't matter. Someone can use it as saying all about you, anyway.

cstross2• 15 years ago

Right you are.

Now extrapolate. What if I'm not an exceptional sparkly unicorn?

At least credit scoring on the basis of repayment of prior debts is linked to your own actions.

byrneseyeview6• 15 years ago

If I were writing a social network layer to a creditworthiness algorithm, the first thing I'd do is create some kind of taxonomy of friend networks. Got 500+ friends? See if the Google results for your name indicate fame (i.e. you show up in title tags on Amazon, IMDB, or the NYT). And bam, reduce the social networks' weighting.

Although I would be willing to bet that a) your fans will have above-average credit scores adjusted for age, and that b) authors whose fans have crappy credit are themselves more likely to have crappy credit.

In the extreme case, if you're a law professor and your FB friends are all attorneys who loved your book, you're probably a good credit. If you wrote a guide to how to fool your parole officer and your FB friends were all fans of your book, your odds of default might be pretty good.

lurker143• 15 years ago

What if you are Adam Sandler or another intelligent, responsible comedian with a base fan base?

rgbrgb• 15 years ago

Hopefully you don't write self-help books for the unemployed.

jrockway2• 15 years ago

The good news is that you don't actually need credit. Rent from someone you meet on Craigslist, spend only what you earn, ride your bike or use public transportation (to avoid mandatory insurance).

dextorious8• 15 years ago

And what about when you want to build a business, Einstein?

there• 15 years ago

good news: companies are people!

let the company build credit.

jarek3• 15 years ago

Boot, meet strap.

nvarsj• 15 years ago

You have a point. Without credit, much small business would simply not be able to exist, or have ever existed in the first place. It's one of our fundamental paths for economic mobility.

dredmorbius• 15 years ago

To an extent this is true. There are still likely to be events in which your credit score is queried: renting from someone who's not a friend (or getting your own place), unexpected medical expenses, especially when uninsured, applying for a job, security-related background checks being implemented (say, at client request) at the job you've already got ....

It's possible to live with very little exposure to Facebook and non-anonymized social media, the consumer credit system, and the like, but it's difficult to eliminate this entirely.

At the same time, this trend speaks to a larger problem: credit scores aren't as useful as they used to be, and/or creditors are increasingly risk averse.

It occurred to me after the 2000 crash that credit scores had limited predictability when the real factor was whether or not someone had an income stream. Credit scores mattered a lot in an age of easy credit, which had a lot to do with getting us into our present mess. Both may be much less prevalent in the future. Or not.

aristus2• 15 years ago

I had a harsh experience while on vacation recently.

In Miami, I was utterly and completely refused a rental car because I didn't have credit history. Never mind that I could buy one of their cars, cash. They didn't want to hear it.

im3w1l2• 15 years ago

Clearly, your credit market is very inefficient.

jrockway2• 15 years ago

I have this same problem. I don't have a driver's license, so I'm not allowed to rent cars. Outrageous!

Taxis and public transportation work fine, though.

byrneseyeview6• 15 years ago

It's very hard to argue against this. Either your social network is a good signal, or it's not. If it's not a good signal, the people who use this information are going to lose money--they will quite literally pay for being wrong.

But if it does work, then overall mortgage rates will marginally decline. Better information will lead to better choices, so mortgages will become less risky overall. Some people will suffer, but keep in mind that when those people oppose this, they are saying "I want to hide material information from the people with whom I do business; if they knew the truth about me, I would get a worse deal." That's fraud.

Yes, there will be false positives. And it's easier to visualize being the victim of one of those than it is to visualize the tiny collective improvement in human welfare that tends to result from better decisions.

I would be interested in an argument that applies in this specific case, but doesn't apply to the general class of rough but useful heuristics, like "Kids with bad grades who drive recklessly are probably less responsible than 40-year-old moms who drive minivans, even though there is some C-student with a red car who is safer than some particular 40-year-old minivan-driving mom."

icebraining2• 15 years ago

But if it does work, then overall mortgage rates will marginally decline.

Or the banks will just raise the profit margins.

Some people will suffer, but keep in mind that when those people oppose this, they are saying "I want to hide material information from the people with whom I do business; if they knew the truth about me, I would get a worse deal." That's fraud.

What about "my bank has no business spying on who my friends are or what I do on my free time"?

This raises the cost (possibly prohibitively, if the number of people who refuse to give out an account is so small that banks can outright refuse credit to them) to anyone who isn't willing to sell out their privacy, and more importantly, their friends'.

And of course, people like me who just don't have an account are outright fucked.

byrneseyeview6• 15 years ago

Banks are in a competitive industry; if their costs go down, they'll cut rates to increase sales, unless there's some implicit or explicit cartel behavior that keeps them in line. But if that were the case, you'd expect banks in general to be more profitable.

Your bank is in the business of figuring out how likely you are to repay loans. They'll probably ask you these questions, since answering them makes you a better customer. But refusing to answer puts you in a low credit-rating bucket.

Banks already use your transactions to figure out how creditworthy you are. If you want to avoid that, you can do all your business in cash, but you will pay for it if you ever want a mortgage. All they're doing is offering you the option: if your privacy is worth, say, 2% per year on a $100K mortgage, then go ahead. But for lots of people, privacy has value, but not an infinitely high value.

You can argue that it's unfair for your desire for privacy to imply that you have something to hide. But if you do, better blame the people who do have something to hide and claim that they just believe in privacy: if such people didn't exist, you would be able to maintain your privacy at a much lower cost.

Maybe you could use a real-world example. Let's say you're hiring an employee, and your employee casually mentions that he changed his name last year. "What was your original name?" "Not telling." "Did you do anything that would give you a good reason to change your name?" "Not telling." "Can you tell me who you used to work for under your previous name, and why you're no longer there?" "Ugh. Stop trying to violate my privacy. Just assume that I have good reasons not to tell you information that you would use to make a reasonable decision; it's totally unfair to lump me in with people who would do that to cover up something terrible they've done, or some unsavory associations they have. I'm not one of those people. Trust me."

matwood• 15 years ago

Or the banks will just raise the profit margins.

A bank doesn't operate alone in a vacuum. As the number of people who have prime credit shrinks the competition to lend to those people will go up. They can't simply raise profit margins because there is always another lender out there who will be happy to take on a prime credit borrower.

mdxch• 15 years ago

> And of course, people like me who just don't have an account are outright fucked.

That's not necessarily true; the models might predict that people who don't have accounts may be more creditworthy.

patio116• 15 years ago

It's very hard to argue against this.

It is easy, but it gets political. The sketch of the argument is "Banks should not be allowed to make judgments which negatively affect certain groups of people disproportionately even if those judgments are accurate, because it is contrary to social justice. It would be better if substantially everyone paid more and/or if banks were less profitable if it meant that access to homes/credit/etc was improved for protected groups at the margins. We have a special obligation to do this because of our collective responsibility for historical and continuing inequities which directly result in the fact pattern which tends to cut against the interests of protected groups."

n.b. Not me talking there, just summarizing a view which is very popular.

rkon2• 15 years ago

Exactly. Or, in other words: The rich would get richer and the poor would get poorer.

roc4• 15 years ago

A couple notes: lower credit scores mean higher rates. If a loan applicant is just as low a real risk as they were last month, but now has a social-signal-adjusted credit score that is lower and thus demands a higher interest rate, the bank will make more money.

Bad signals applied uniformly across the industry can be massively profitable.

Second, lowered risk hasn't had much impact on rates. Increased risk, as we saw banks take on during the bubble, led to very low mortgage rates. Whereas, absent federal programs to encourage refinancing, current rates are often higher than five years ago, for people of the same credit risk.

Another example of this would be the bankruptcy "reform" laws that made it very hard to discharge credit card debts. These have dramatically lowered real risk for US banks, but no corresponding drop in credit card rates has been seen. Again, contrary to what simple economics would predict, rates are often higher than they were before the reform for the same people.

pasbesoin• 15 years ago

Some things simply need to be outlawed. Unless you truly like the idea of ending up with a caste system.

It's a slippery slope.

brown9-2• 15 years ago

So, is it actually accepted that a person's creditworthiness is correlated to the creditworthiness of the people they socialize with?

code_duck• 15 years ago

The assumption that I socialize with the people on my Twitter or Facebook lists is incorrect, also.

drivingmenuts2• 15 years ago

The implied assumption (not you, the credit industry) that I value a relationship with a bank more than my friends is incredibly wrong.

I would gladly take a bullet for some of my friends. I would watch a banker drown with no guilt whatsoever on any day.

tedunangst• 15 years ago

If they weren't correlated, there'd be no benefit to the bank using that information.

omouse• 15 years ago

I love how we're all being reduced automatons thanks to statistics and I especially love how programmers seem to have a data mining fetish that will only help governments, corporations and banks, the same groups that repeatedly screw things up.

Also, won't some of this count as discrimination based on age, race, gender, religion, political beliefs? At least in some tangential sense?

LiveTheDream• 15 years ago

If this were to get big, the industry to game it will be even bigger. Pay $500 to friend some high-credit-rated people on Facebook to get a few points off your loan. Then un-friend them after the loan is established.

feralmoan• 15 years ago

Its an amazing opportunity for brokers and ilk geared for risk to join cracker circles privy to lenddo et.al algo exploits, creating a credit-metric marketplace. Game on.

namank2• 15 years ago

How is this not an edge case of discrimination?

Isn't this saying you are guilty by association? I see this as an infringement on my civil liberties.

This fails to take into account the element of CHANGE. Change that is as much a function of time as it is of a person's choice and circumstance.

The idea may succeed; hell, it WILL succeed given the nature of financial institutions and the online social infrastructure that exists today but it will be an aberration in the name of progress.

sliverstorm3• 15 years ago

How are your civil liberties infringed by receiving a different rate from someone else? Why are you not busy protesting car insurance?

Also, it's not "guilty by association", it's "risk by association".

namank2• 15 years ago

Car insurance applies to the skill of driving. And the part mandatory by law is third party insurance. So essentially, car insurance is not for your protection, its for the person you hit. The concept of owner's insurance is so you can also pay for your own car after running into a pole - this is optional.

Withholding financial goods from a person based on their social interaction is different from suspending their driver's licence because money is a need and is directly related to the very survival of a person. Money, in our society, is a very fundamental requirement; driving licence is not. So this idea imposes a very real threat on my very existence. And thats why its an infringement on my civil liberty.

Judging a person's financial aptitude based on their social actions is dangerous. Not to mention the fact that social interaction isn't currently scientifically quantifiable and so all the conclusions you draw from the data are essentially opinions of the experimenter, nothing more.

GFKjunior• 15 years ago

What if the only online profile I have is a GitHub account?

But seriously, 2016? I expect a totally new social networking platform to emerge by then.

drivingmenuts2• 15 years ago

This is an opportunity. The same tech that the military uses for propaganda can be used against banks that scan your profiles.

aniro• 15 years ago

response from a friend of mine:

"I would like to be able to run an antivirus style application on FB that identifies relationships that are a threat to my credit profile, career prospects, and caste. I want to know who to ditch."

sbov• 15 years ago

They may find this useful at first, but if they weigh social media heavily wouldn't it be too easy to game to be useful in the long run? It isn't that hard to have 2 Facebook or twitter accounts.

andrewhillman• 15 years ago

This is either really clever or frightening if its used beyond marketing. smart marketing but somewhat unethical. Interesting nonetheless.

teyc• 15 years ago

How about the TV shows you watch, the books you read, and whether you call things "Grape Juice" or "Grape Drink". The problem with bad Fico is that it in itself can create self-fulfilling prophesies. Just look at Italy.

When Banks Use Facebook Friends To Determine Your Credit Score

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