Can Facebook posts affect your credit scores?
The writing is on the 'wall' - financial agencies may soon be using your online presence to help determine your credit worthiness.
Not a lot of us understand where our credit scores comes from. We pretty much get that it has to do with paying our bills on time. We know that it's hard to repair once damaged and we know that, by and large, it's pretty important. Beyond that the pieces that move in the background are, usually, pretty much a mystery.
Well, things may be about to get even more complicated, as financial agencies have begun exploring social media to verify identities and evaluate your credit score.
As Bloomberg News reported last week, payment and credit reporting agencies have begun testing ways to integrate social media, such as Facebook, Twitter and personal blogs, into the financial process. The goal is to find new sources of information to help determine an individual's creditworthiness, as well as to confirm people's identities online.
Equifax, one of the three national credit reporting agencies (CRAs), declined to comment for this story, but did issue a press release indicating that the company does not currently use social media as a source of information.
However, the statement went on to say, "Equifax is exploring whether unstructured data, including social media data, could potentially be used with structured, attributable data to develop analytical models that help better assess risk and verify identity."
In other words, even if your credit report doesn't currently reflect the state of your Twitter feed, sometime soon it might.
An industry term of art, unstructured data simply means any form of information that doesn't lend itself to traditional databases. For the most part this applies to data that is non-numeric, such as text or media. How many cookies you've had in the last year is an example of structured data. A Facebook post about your new recipe, or photos of you at the Mrs. Fields, are unstructured.
In fact, a cottage industry has already sprung up dedicated to mining and distilling social media and unstructured data. Companies like Sysomos, LatentView, SAS and many more have for years combed online sources for valuable information. These companies rarely make use of the product for themselves, instead packaging it into profiles to sell on the market.
What's new is who's buying, and in this case that's a big change. It's one thing if an old college photo draws extra coupons from Frito-Lay. It's another if it gets you denied for the lease on your new apartment.
According to Paul Stephens, director of policy and advocacy with the Privacy Rights Clearinghouse, this can have far reaching consequences.
"I think individuals,when they use social media, are not fully aware," he said. "People certainly realize that activities such as paying your bills on time are going to be considered in a credit report, but I don't think that people have a reasonable expectation that something like social media or extraneous sources will be a factor."
Often people get taken completely by surprise by what can and can't hurt them. Even information that you consider harmless might fit a certain profile or raise red flags based on complicated metrics happening inside the database. You can even run a risk by having the wrong friends.
"Not only is the information that you post on your page going to be considered," Stephens said, "they'll also look at the information that your friends post on their pages (about themselves).
They can take that information and data mine it, and if they see a pattern they can make an inference about you by association.
You are truly, whether you like it or not, the company you keep on social media. And that's dangerous.
"Frankly that kind of information can be inaccurate, or the inferences can be," Stephens said.
Concerns about inaccuracy are particularly important in an industry which already suffers from error rates as high as 26% according to studies by the Federal Trade Commission. It is worth noting, however, that CRA's would likely respond that increased accuracy is specifically why they are looking for new sources of information in the first place.
Beyond inaccuracy, drawing on social media to generate credit scores can also create potential legal issues. According to David Jacobs, an attorney with the Electronic Privacy Information Center, turning to non-traditional and unstructured data can create problems with the Fair Credit Reporting Act (FCRA).
"Most people are only generally familiar with their rights under this," he said, "such as having the right to see your credit report and if it's used in a negative manner."
The relevant section of the FCRA is the individual's right to always see when and why a determination has been made against him. This section is often referred to as the "notice provision," and it's where companies mining social media often run into problems.
"This law has been violated a few times in the social media context," Jacobs said. "(For example) one company was offering a background check app, you could use it to run a background check on, like, a date."
In fact, at least six companies have received warnings from the FTC regarding background check applications that violate the FCRA's notice provision about personal and credit-related data.
Importantly, in 2012 the FTC fined data mining firm Spokeo, Inc. $800,000 for compiling social media databases on millions of consumers. The company sold profiles to background screeners, recruiters and human resources managers without ensuring proper accuracy or notice to the individuals.
This decision established for the first time, and without question, that the data mining your online presence is subject to the terms of the FCRA. In other words, if your credit has been hurt by pictures floating around on Facebook, you have a right to know.
That right to know might come in handy, considering the deliberate glee some data miners seem to take in creating extra problems for job seekers and, and potentially now, credit seekers. For example one such company, Social Intelligence, prominently posts on its website articles with headlines such as "Social Media Becomes a New Job Hurdle," "I Flunked My Social Background Check. Will You?" and "Those Facebook Posts Could Cost You a Job."
According to Jacobs, in fact, when it comes to social media, the FCRA's notice requirement is already likely "violated quite often."
Still, notice requirement or not, greater scrutiny of our personal lives will almost inevitably lead more and more people to keep themselves sanitized online. One unintended consequence of this could even be a sort of corporatized cyberspace, with content that's only suitable for people who live in glass houses.
With this new form of reporting on the rise, regulators may be already gearing up to push back. In January of this year, the Federal Financial Institutions Examination Council announced a proposed guidance "on the applicability of consumer protection and compliance laws, regulations, and policies to activities conducted via social media by banks, savings associations, and credit unions, as well as nonbank entities supervised by the Consumer Financial Protection Bureau and state regulators."
The guidance, while not having the force of law or regulation, could limit a creditor's ability to find or apply social media data. It remains only proposed so there's no way of knowing what action, if any, the agency will take.
If nothing else, however, it shows a recognition that this is a new issue for everybody, and it's not about to go away any time soon.
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