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Company you keep: Facebook friends could affect credit score

Posted at 10:09 AM, Aug 26, 2013
and last updated 2013-08-26 10:09:31-04

NEW YORK (CNNMoney) — Choose your Facebook friends wisely; they could help you get approved — or rejected — for a loan.

A handful of tech startups are using social data to determine the risk of lending to people who have a difficult time accessing credit. Traditional lenders rely heavily on credit scores like FICO, which look at payments history. They typically steer clear of the millions of people who don’t have credit scores.

But some financial lending companies have found that social connections can be a good indicator of a person’s creditworthiness.

One such company, Lenddo, determines if you’re friends on Facebook with someone who was late paying back a loan to Lenddo. If so, that’s bad news for you. It’s even worse news if the delinquent friend is someone you frequently interact with.

“It turns out humans are really good at knowing who is trustworthy and reliable in their community,” said Jeff Stewart, a co-founder and CEO of Lenddo. “What’s new is that we’re now able to measure through massive computing power.”

A German company called Kreditech says that it uses up to 8,000 data points when assessing an application for a loan.