You know I love a good privacy outrage as much as anyone. But a story last week in the Financial Times started a kerfuffle about Facebook posts and pictures impacting your all-important FICO credit score.
FICO tells me in no uncertain terms this isn’t true.
The incident is a good occasion to talk about what is and isn’t a credit report and score, and why that matters.
First, here’s what happened. FICO Chief Executive Will Lansing was discussing the predictive value of data with an FT reporter. The conversation arose as the nation’s three credit bureaus and scoring firms like FICO are racing to broaden the data they use to judge would-be borrowers. Roughly 50 millions of Americans have trouble borrowing because their credit files are “thin” or non-existent, so firms are looking to augment their reports with non-traditional data, such as utility bill payments. In that context, Lansing said this about social media posts:
“If you look at how many times a person says ‘wasted’ in their profile, it has some value in predicting whether they’re going to repay their debt,” Lansing told the Financial Times. “It’s not much, but it’s more than zero.” (FT requires a subscription)
That led to a headline, “Being wasted on Facebook may damage your credit score.”
The story goes on to explain that lots of firms are looking at new ways to judge credit applicants, which is certainly true. It’s also true that it’s not a good idea to brag about being wasted on Facebook. But if we’re talking about credit scores as defined by the Fair Credit Reporting Act, using Facebook posts as part of a lending eligibility decision would almost certainly be illegal.
There’s good reason for folks to be worried about social media posts being used against them — it happens all the time. But it’s important to understand that, at least for now, data used to make lending, employment, or insurance decisions about you is treated VERY differently than other kinds of data. It’s use is heavily regulated. Most firms that collect data about us work very hard to make sure the information is used for marketing purposes only, so they steer clear of all the rules around credit reports.
If Facebook posts were collected and used to generate a score that influenced employment, lending, or insurance decisions, a whole bunch of Fair Credit Reporting Act rules would kick in. Consumers would have the right to see the report that included the posts once per year, as they can now see their credit report for free once each year. And there would have to be a dispute process so consumers could challenge and correct inaccurate information. That would be a huge hassle for companies to provide. Certainly not impossible, but it’s no small task.
And critically for our discussion, FICO — used by the majority of lenders — isn’t doing it.
“Despite the sensational headline, the original story created a misperception. FICO is not utilizing Facebook data, or any other type of social media data, in any of its scores. There are no exceptions to this,” Jeffrey Scott, a FICO spokesperson, told me. “Mr. Lansing was talking generally about the fact that different types of data have different levels of predictive value. He was not referring to any FICO product.”
I don’t want to create the impression that this will never happen, however. So-called “Big Data” lending companies are Wall Street’s new fascination. These firms are creating all kinds of new formulas for making lending decisions. A handful of firms are offering payday-like loans as a worker benefit, for example. Instead of traditional credit scores, these firms use proprietary formulas to assess risk. We don’t know what these formulas are at the moment, but they most certainly could include data points like social media posts. And while the data used by such firms probably should be subject to Fair Credit Reporting Act rules, it might take a while for regulators to catch up with them. (Read more about Big Data lending here.)
Meanwhile, stories about firms using Facebook data in all sorts of ominous ways persist. Two years ago, a firm that said it could judge credit worthiness based on Facebook friends got a lot of ink. So did researchers who predicted job applicants’ success based on their posts.
What’s the moral of the story? When you’re having fun on a Friday night, feel free to say, “no pictures.” Because you never know how a post might hurt you in the future. But today, at least for now, FICO doesn’t care what you do on weekends. As long as you pay your bills.
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