There may have been a time when the idea that social media would be used to leverage creditworthiness seemed ludicrous. An increasing number of organizations are turning away from traditional data, however, and are using new sources of information to determine whether to approve an applicant's loan. This includes social media platforms, meaning that may become even more important to carefully manage what you share online in the future.
Providing lenders with alternative sources of data can be a great help to borrowers who have a poor credit score, which doesn't necessarily mean that people have mismanaged their finances. Lacking any form of financial history can be just as bad as poor money management.
Around 26 million people in the U.S. were found to have no credit score in 2015. Many of these are millennials who have shunned credit cards. As a result, it is challenging to access personal loans, competitive interest rates, or the capital to start a new business. ID Analytics found that the biggest group of credit card applicants are those aged between 18 and 34 - the application rejection rate is also a high among this group, as they often lack a credit score.
Using alternative sources of data, such as social media, to help develop a creditworthiness rating may benefit those who don't have a score. It is yet to be seen how useful or accurate the assumptions gleaned from social media about someone's financial circumstances might be, but it is worth considering the consequences on personal finance when posting public content across social media.
This article was provided by our partners at moneytips.com.
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