Can Your Smartphone Wreck Your Credit Score?
A persons credit score has always traditionally been based on past data. Lenders will analyze the creditworthiness of the borrower based on their payment history, amount of debt and credit age in order to determine how likely they are to pay back on the debt. However, since society is becoming more data-driven, could lenders start using smartphones to measure the creditworthiness?
In some parts of the world this is always happening. Several Silicon Valley startups have launched mobile apps that use data acquired from smartphones to underwrite and make loans to users in countries like Kenya and Tanzania, The Wall Street Journal reports. Let’s take a look at how the new technology works and what it might mean to your credit score.
How the Apps Work
By downloading these apps to your smartphone, users grant micro-lenders access to any and all information which includes texts, emails, time and duration of calls and also payment records. Underwriting algorithms have begun to recognize that infrequent travel, fast-draining batteries and sending more texts than one receives are red flags, while evening phone calls, which show price sensitivity since they are cheaper, receiving more texts and gambling (yes even gambling!) are signs you are reliable, WSJ says.
By taking into consideration these and other factors, lenders can grant immediate approval and financing to consumers. For example, on the startup Inventure’s website, it says that most of its small-dollar loans can reach borrowers across Africa in less than five minutes.
Are They Coming to a Phone Near You?
Using smartphone information in underwriting may work in upcoming markets, such as South Africa and Nigeria, where banks can be scarce. But the startups WJS spoke with didn’t mention any plans on bringing their tech to the U.S. If they were to try, widespread adoption may be difficult. Obtaining a loan or getting financed in the U.S. is easy, so that could potentially negate the privacy tradeoff consumers would have to make to access a loan. In addition, financial institutions using this type of technology would need to be careful not to run afoul of fair lending laws.
It’s not to say that types of social data found on a smartphone won’t affect your ability to score a loan. Some lending startups in the U.S. scan social media accounts as part of their loan decision process. Recently an executive for FICO suggested that Facebook profiles could have some worth in determining a person’s ability to repay. (They did specify that content posted in the timeline is not used to calculate the credit scores).
Though social media cannot hurt your credit, other information has already made its way to certain reports. Specialty renters’ reports, for example, consider the renters history, while credit scores are designed to help the underbanked examine deeper credit card transaction data, among other things, to help those outside of traditional credit scoring system.
With this new information, consumers should think twice about posting certain things on social media or other outlets. And no matter what data it is use, it is important to keep an eye on your credit. Scanning these reports for errors can be a great way to keep scores intact and prevent identity theft.