Men are silhouetted against a video screen with an Twitter logo © Dado Ruvic-Reuters

Assessing risk and determining a borrower's qualification for approval has largely been based on the private data a consumer shares with lenders, but an increasing number of potential lenders are mining social media, according to PersonalLoanOffers.com.

"This trend of snooping into a borrower's social accounts is a dangerous violation of privacy and serves neither the consumer nor the lenders to continue this practice," said Kali Simmons, spokesperson with PersonalLoanOffers.com.

Depending on what is posted on social media sites, such as Facebook, Twitter and LinkedIn, personal information can either help or hinder the user.

"The use of social media is most common in collection efforts of defaulted existing accounts and with sub-prime lenders who receive applications from consumers who do not have sufficient traditional credit history," said Thomas Nitzsche, senior media relations coordinator with ClearPoint Credit Counseling Solutions. "These lenders claim using alternative scoring methods can help provide credit to those who may not otherwise be able to obtain it."

Under the Fair Credit Reporting Act, traditional scoring agencies, such as TransUnion, Experian, and Equifax, are required to verify credit history details for accuracy when disputed, but the Equal Credit Opportunity Act (ECOA) requires that any scoring tool used by lenders be empirically derived and demonstrably sound.

"That standard hasn't been met regarding the use of social media data in scoring systems so it cannot legally be used by lenders," said John Ulzheimer, credit expert with CreditSesame. "There has been some noise that lenders like LendUp and Kabbage are using social media as a secondary tool behind other more traditional tools, like credit reports and credit scores, but they're extending tiny loans and not solely basing their decisions on social media."

Currently there are no regulations preventing lenders from using social media data in evaluating applicants.

"Because there are no regulations concerning this practice, applicants are more likely to be subject to arbitrary, unfair and/or discriminatory decisions by lenders," said Sophia Lau, an attorney with Early Sullivan Wright Gizer & McRae in Los Angeles.

To protect from potentially nosey lenders, privacy settings can be adjusted to limit access to outsiders or loan applicants may choose to deactivate their social media accounts altogether.

"Job and loan applicants should be aware that nothing posted on the internet is completely private and may be accessed by potential employers and lenders so they need to be conscious about what they say and post online," Lau told MainStreet.

To increase perceived credit worthiness in social media postings, consider these tips:

  1. Use social media to increase professionalism by having an accurate LinkedIn account. "Social media users should make sure that their employment information is up to date and consistent with any information they may have provided to lenders," said Lau.
  2. Don't leave your social media accounts unattended. "Social media accounts can be hacked and in some cases are not checked regularly by the user," said Nitzsche, whose Twitter account was hacked with obscene messages. "I had almost forgotten about the account and was shocked when I found what had happened."
  3. Limit personal information listed on social media sites. "Don't post pictures, updates or personal information about yourself," Nitzsche told MainStreet. "Alternatively, sub-prime consumers can beef up their social media profiles to help them obtain credit when needed."
  4. Don't accept, friend, connect with or like strangers. "Be conscious of who you accept as friends or connections because some lenders believe that the quality of a person's social network may indicate stability and an ability to repay debts," said Lau.
  5. Portray a healthy lifestyle online. "You do this by liking the right organizations and companies, not posting reckless behavior or extravagant and non-essential purchases that would be incongruent with your request for credit," said Nitzsche.

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