Financing With a Little Help From Your ‘Friends’

The Beatles once sang about getting by “with a little help from my friends,” but some consumers might now be able to buy with a little help from their friends thanks to some new tech startups that use social data to assess the credit risk of potential borrowers.

Many lenders focus a lot on credit scores, and generally avoid those millions of consumers without credit histories. Some lenders, though, look at a borrower’s social connections as a gauge of their creditworthiness.

Lenddo, for example, can see if you have any friends on Facebook who are members of its online community and were late paying back a loan. If you do, and you interact with them often, that might not bode well for you getting a loan of your own.  

Another company, Kreditech, uses up to 8,000 data points from Facebook, Amazon, or eBay accounts to evaluate loan applications. Additionally, the company even looks at how a customer fills out the online loan application. It’s able to determine if you took time to actually read the application, as opposed to quickly filling in the blanks, filled it out in all caps or no caps, and if your computer is located where you said you live or work.

Online service Kabbage, which provides cash advances to small businesses, deems a credit score a small part of the big picture. Borrowers give Kabbage access to PayPal, eBay, and other similar online payment sites for current sales and business information, and the company can calculate creditworthiness in only seven minutes. Once a business is approved for credit, it can add its Facebook and Twitter accounts to the mix, which could make its “Kabbage score” rise. Those businesses that opt to do so are 20% less likely to default, Chairman and Co-Founder Marc Golin said in the article linked above. 

While these startups could offer valuable, if not “Big Brother-ish,” insight into who exactly a prospective borrower is, can these factors truly predict risk the way a credit score can? We might not know for certain just yet as these companies are just getting started, but perhaps future borrowers should think for a moment before clicking to approve that next friend request.