The tried-and-true Fico score worked well in years past, Keith Shields, senior vice president of analytic services at Loan Science, and chief analytics officer at Magnify Analytic Solutions, told the audience at the 14th annual Auto Finance Summit held in Las Vegas this week. But increasingly, traditional lending models are being undercut by custom solutions that allow for more approvals and lower default rates, and one major signal that is often ignored is a borrower’s social media channels.
“A custom score does result in a reducation of defaults,” Shields said. “Everyone can approve a 700, you see the number and ok, that’s easy. But what’s hard is to find a 650 that performs like a 700.” Lenders using only traditional data inputs could miss those 650s that perform like 700s, Shields said. “There are good 550s and bad 550s,” he said, and better analytics can help show which is which. He described a recent examination of Twitter activity that was matched up to default rates.
“Borrowers who used the phrase ‘test drive’ were significantly less likely to default,” he said. Phrases such as test drive indicate engagement, an important factor for borrowers’ likelihood to continue making payments. “Engagement lowers risk,” Shields said.
Is there more to this article than what I see here? How did this company “match up” twitter phrases with default rates on credit reports? So, if the phrase “test drive” shows engagement on the part of the consumer and in turn can somehow be tied to lower default rates, are they saying that there would also be negative twitter phrases that correlate to higher default rates?
Gotta say, this sounds like a very touchy subject that could open a Pandora’s box for federal regulators. I don’t see how this could possibly be of any benefit to a lender.
Hi Rich, Good questions, thanks! The Twitter test was done with a specific lender that gave Keith’s outfit insight into how customers performed. And there are certain to be quite a few phrases that give indications of various behaviors, but you’d have to ask Keith for more information on that. In the presentation he gave, “test drive” was the only example given. As for regulators, what is published on social media is public information, but using it to price loans is another matter. With all the interest in social media among the banks and alternative lenders, this matter should be expected to come up sooner rather than later!
EDIT – Come to think of it, Keith also mentioned health events. Healthcare is the #1 cause of bankruptcy, and borrowers often post about their health on social media. This can be a signal to a lender to pay extra attention to that loan.