The Implementation of Social Credit Scoring or How Your Social Habits May Cost You a Loan
- 15th August 2018
- Posted by: Loanable
- Category: Resources
We need to preface this sharing of what is happening in the world of lending and getting a loan with two very important points to be made:
* We are moving to a cashless society
* Social credit scoring is here
Out of context you may ask yourself, what is he saying/writing about???
How are these two thoughts or ideas joined together at the same point?
All will be revealed.
The Basics of Getting a Loan
When you look at getting a loan, in its simplest terms it really comes down to:
* You making a loan application
* The lender looking at your credit score/history and affordability
* Do you have a deposit, for some secured loans such as for a car or a property
* Granting, rejecting, or conditioning the loan
Pretty simple as they say.
However, the undercurrents of being approved for a loan have changed over the years, more and more credit scoring is being used, and why not. Credit scoring makes it easier for a lender to make a decision very quickly as to if they will grant or reject a loan.
Lenders need this way of making a decision quickly due to the fact as borrowers and consumers, we want answers fast. We don’t want to wait around waiting for days or week on end to know if we will get our loan or not.
That is in part why credit scoring was developed. To give a numerical possibility to the ability and fact you will repay a loan.
A high credit score is good, and means you pay your accounts on time and make good use of credit.
A low credit score may mean you do not pay your accounts on time, or you may have no credit.
However, as time changes everything, it is also changing credit scoring.
One has to ask, is credit scoring fit for purpose any longer? Has it become antiquated and in need o updating to the 21st Century.
There are those that answer this question with a Simon Cowell answer, “ a big fat yes!”.
Credit scoring is changing, and needs to change more.
Our world is changing, technology is advancing us in many ways, and why should credit scoring be any different, it needs to advance as well.
There is so much data out there on us, more than just how we pay our bills. It is almost as though the world has become transparent in some ways, we live our lives in a social and social media consciousness.
When you do a search or Google your own name, or if you are active on social media, you may find much more about yourself that you realise is available to the general public; especially if you are on Facebook.
And don’t forget to do an image search of yourself as well.
All this “new” data about is, it can be incorporated into credit scoring.
That is where social credit scoring or social credit, has its origins and beginnings.
But first, let’s look at social media and loans.
Social Media and Getting a Loan
You may ask yourself, what does social media, me being on Facebook, Twitter, and whatever is the next latest and greatest social consciousness, have to do with my getting a loan?
I have a good credit score, and can afford to repay a loan, so why would a lender take the time to research my social media accounts?
It’s not just lenders, but employers as well that may paruse your social media accounts to get a better idea and picture of who you are.
If collectors trying to collect a debt can use social media to locate and contact a debtor, why can’t banks do the same in their underwriting process, or employers use social media as a part of their hiring process.
So all this information and data is out there on us, why not use it?
Some of you are now thinking, finally, he gets to one of the main topics or points to be made here, about a cashless society.
We are moving, and just recently became a cashless society.
Just earlier this year for the first time, using cards, credit and debit, overtook the use of cash for purchases.
Think about it, cash is so sordid, using a credit or debit card is clean, easy, and in some instances, contactless.
You don’t need to carry large amounts of cash, it’s convenient, safer to some degree, and just easier all round.
You can even buy a copy of the Big Issue, give to a busker, and even donate to a homeless person on the street, all without the use of cash.
However, while convenient, using cards also leaves a trail, a trail of financial crumbs that leads itself back to you.
Your purchases are traceable.
This “traceablity”, is one of the aspects used in Social Credit and Social Credit Scoring.
With a social credit reporting system, your online and other purchases, as they can now be traced via your card usage, can be used to make-up a part of your social credit score.
You may say, so….how does this affect how I will repay a loan?
Good question, and none of it may change how you pay your bills, but in the overall grand scheme of things, all these little factors come together to become one; one social credit score.
In China this is already a reality, and the outcome for those that have poor social credit scores is more than just being denied for a loan.
They can be denied certain jobs, where they can live, schools their children can attend, and even affect their ability to travel.
But that’s China, not here in the good old UK, right?
Maybe, maybe not.
Social scoring is making its way to our shores, and some things lenders look at may surprise you.
Your Social Habits Costing You a Loan
Finally he gets to the point, how are our social habits costing us a loan? Please share.
I explained in brief, how being a cashless society makes it easier to trace where we spend our money, how much and on what items.
So the cashless society aspect has been touched on, and it is this traceability that shows your social habits, which could cost you a loan.
One social habit, which is not always social, is drinking, drinking alcohol.
If you visit an ATM/cash point and take out £20, no one knows where you have spent it.
If you go to a pub, and spend £20, now everyone knows where you have spent it. At the pub.
Drug dealers don’t take cards, for a variety of reasons, but if they did, then by buying your drugs with a card would reveal your drug usage, and also the seller.
Do you purchase prescription medicines online, for ease of delivery or for whatever reason? Thin anyone who wants to look at your bank statements will know this.
Are health issues supposed to be a part of the underwriting or approval process for a loan….not really, no. But who says a lender may not use this as a basis to deny a loan, in an extreme health related concern; or perhaps require insurance on the loan, as a condition for approval.
It sounds extreme, but who thought 25 years ago so much data would be floating in the ether about ourselves.
People share their relationship status online, when they are going on holiday and where and for how long (can you say please rob me while I am away), and so many other aspects of their lives.
Lenders asking to view bank statements for a mortgage or other loan, is not out of the question. It may even be under the guise of “needing to verify balances”.
This is no conspiracy theory, it is a reality of the cashless and big data world we live in.
As to how far the pendulum will swing towards this new social credit scoring and what other data and aspects of our lives may come under scrutiny in order to get a loan, or a job in the future, who knows?
Who knew or predicted where we are at today?