Saying "Wasted" On Facebook Can Affect Your Credit Score (ajc.com)

JustAnotherOldGuy writes: According to a recent report by the Financial Times (paywalled), some of the top credit rating companies are now using people's social media accounts to assess their ability to repay debt. "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," Will Lansing, chief executive at credit rating company FICO, told the Financial Times. "It's not much, but it's more than zero." According to the Financial Times, both FICO and TransUnion have had to find "alternative ways" to assess people who don't have a traditional credit profile — including people who haven't borrowed enough to give creditors an idea of what kind of risk they pose.

Comments

I have no debt and a hefty savings account

[Anonymous Coward]

According to lenders this makes me a credit risk.

Re:I have no debt and a hefty savings account

[Anonymous Coward]

This entirely.

The credit systems is quite screwed up. I worked a shitty McJob full time during summer and part time during school (except for the last year where I decided to focus on my studies). Managed to be one of the very few people with a degree and no debt without Mom and Dad paying for it.. and was proud of this. Got a decent job, was still living at home so built up some decent savings, payed for most stuff with cash or debit. Eventually decided to get a credit card, and yup, had to deposit a chunk of cash that I couldn't touch for 6 months before they'd give me one. This would seem entirely reasonable to me, except by this point my sister was in university.. student loans (in her defense, her program was many times more expensive than mine..), and no income (she worked summers but not during the school year).. and banks (including mine, RBC) were practically throwing pre-approvals at her.

Fast forward about 10 years, I now own a house, have a mortgage, a line of credit, credit cards.. basically if I added up all the credit I have available to me it would be multiple times what I make in a year) .. and I get calls all the time from the big banks trying to give me even more.

There was a good(ish) documentary a few years called Maxed out on Debt... if you ignore the annoying drama stuff in the middle, there's some good frank interviews that explain a lot of it. They _want_ people who arn't completely broke but can't afford the credit so they'll keep making minimum payments forever. They want to load you down with more credit than you can afford so you get on that treadmill.

I'm kinda on the fence with regards to how I feel about this. One one hand, the banks are doing some shady stuff and directly trying to set people up for financial disaster for their own benefit. On the other hand, they arn't forcing people to use their credit cards beyond their means. Personally I've managed to never pay interest on any of mine. I guess it's gotta be a middle ground. Much as I hate nanny-state type stuff, I feel like this is one area we may need the government to come in and save people from themselves by restricting how much credit a person can hold based on income or something.

Re:I have no debt and a hefty savings account

[ShanghaiBill]

According to lenders this makes me a credit risk.

Because you are. People with no debt are less likely to pay off debt once credit is extended, than someone with a track record of making regular payments on an existing debt. Credit score criteria are not just randomly pulled out of a hat. They are based on hard data.

Re:I have no debt and a hefty savings account

[Anrego]

For all that people rail on about how stupid and illogical the credit score system is, it does generally seem to work in most cases. People who are financially responsible do tend to end up with good credit scores, and those who arn't tend to have bad ones.

The only area it's weak in is people who manage to get into their adult life without needing credit, but then if you've never had a car loan, a credit card, or any kind of debt, even if it's because you're financially well off, it's still probably a bad idea to hand you a 300k mortgage.

And building credit isn't hard. You don't have to pay interest, just get a no fee credit card, use it for some of your purchases and pay it off every month. Most banks will give you a credit card if you leave a deposit covering the limit with them for a certain amount of time, or you can get someone to co-sign (usually a parent).

Re:I have no debt and a hefty savings account

[Anonymous Coward]

Canada too!

Made it out of school with no debt, had to get parents to co-sign for my car loan despite having a decent full time job for at that point 2 years because I had no established credit.

Re:I have no debt and a hefty savings account

[Anonymous Coward]

I used to do phone support for Capital One credit card and they determined that if the first transaction you make with your card is cash, it's likely you will max the card and not pay it back.

What happens is you get your new card, you go to the ATM, get declined, phone in then CS tells you it's for 'security reasons' to 'protect you from fraud' then asked you to fax in 3 or 4 pieces of ID to 'verify yourself'. After that, they tell you the information was illegible and that they can't reinstate your card.

I can understand them declining people who are a likely risk but literally telling them a bold faced lie is what kind of surprised me. They used to refer to Capital One as "Cap One" for short, I'm not sure if they caught how appropriate "Capone" was to describe the way they do business.

Re:I have no debt and a hefty savings account

[easyTree]

They _want_ people who arn't completely broke but can't afford the credit so they'll keep making minimum payments forever. They want to load you down with more credit than you can afford so you get on that treadmill.

I'm kinda on the fence with regards to how I feel about this. One one hand, the banks are doing some shady stuff and directly trying to set people up for financial disaster for their own benefit.

Yep, every dollar of debt you take puts $10 back into the sytem which they can then lend out to ten more suckers. Gotta love it.

Re:I have no debt and a hefty savings account

[Aristos Mazer]

> On the other hand, they arn't forcing people to use their credit cards beyond their means.

If you look at a lot of the ads that they send us, those ads suggest strongly that they're making the offer because it *is* within your means. These people with advanced math degrees say you're a great person to get this credit... it's easy to start thinking they understand something about your finances that you've missed if you don't really grasp the terms "compound interest" and "APR" etc. I think the sales pitch often crosses the line into dishonesty. Not always, but frequently.

Re:I have no debt and a hefty savings account

[ArylAkamov]

The only area it's weak in is people who manage to get into their adult life without needing credit, but then if you've never had a car loan, a credit card, or any kind of debt, even if it's because you're financially well off, it's still probably a bad idea to hand you a 300k mortgage.

And building credit isn't hard. You don't have to pay interest, just get a no fee credit card, use it for some of your purchases and pay it off every month. Most banks will give you a credit card if you leave a deposit covering the limit with them for a certain amount of time, or you can get someone to co-sign (usually a parent).

Exactly what I'm going through now. Up until a year ago I paid for everything with cash or debit but I get the feeling it'll be awhile before I can pay for a house in full. My idea of "If I can't pay for it right now, I don't need it" kinda screwed me for awhile.

Re:I have no debt and a hefty savings account

[Hognoxious]

It's not necessarily that you're a bad risk, it could be that you have low profit potential because you'll probably pay it off in time, not roll it over, etc.

Somebody's bonus depends on you getting stung for fees & extra interest, you heartless bastard!

Re:I have no debt and a hefty savings account

[chipschap]

I too have 800+ credit scores, very good savings, and a paid-off home. Therein lies the problem. I don't have any debt any more, and while I use credit cards for nearly everything, I never carry a balance beyond the payment due dates. I've been retired for a while and have a steady pension income that is quite adequate.

So I asked for an increase in my credit card limit, and was turned down, with the EXPLICIT statement, "You don't have enough debt." Not "your credit isn't good enough"--- they as much as said my credit was just fine.

In other words they see that in their industry I am, and will remain, what is called a "deadbeat." This does not mean a non-payer, this means someone who PAYS and doesn't carry balances, thereby denying the banks the opportunity to collect interest at extortionate interest rates.

Is there something wrong with this whole system?

Re:I have no debt and a hefty savings account

[Nutria]

with the EXPLICIT statement, "You don't have enough debt."

Maybe what they really mean is "our actuaries have discovered that people who don't carry any debt but suddenly ask for an increase are statistically more likely to skip out".

Is there something wrong with this whole system?

Depends on what the purpose of "the whole system" is.

Re:I have no debt and a hefty savings account

[TheRaven64]

My bank doesn't appear to even share my income with themselves. When I applied for a mortgage, one of the things that I had to prove was that I'd been paying my rent regularly for the last three months (yes, they really did only care about three months). I thought this would be easy: I'd been paying by standing order, from an account with them, so they could easily look at when the standing order was set up, and the fact that it had been paid every month for the last few years. Apparently they couldn't - I had to take three months of bank statements into the branch. It was then that I understood why subprime mortgages had been such an issue.

Re:I have no debt and a hefty savings account

[TheRaven64]

Because saving money and paying off credit is basically the same thing: making sure you have left over money at the end of the month to achieve what you want/need to achieve

Nope, regular savings and paying off credit are the same things. This is why having a savings account that has a regular fixed payment increases your credit score, but one that you just dump money into periodically does not.

I think the truth is more likely closer to what others mention here: why would banks give credit to people who hardly need it, and will never ever be late in paying or transfer balances to the next month? that's where all their money comes from, sounds like a terrible customer to do business with!

It depends a lot on the kind of credit. For personal loans, the interest rates are so high that you want people who can pay it back, because you're making 10-20% in a year on the total loan. For mortgages, the cost of repossessing a house and then selling it can be very high, so you really want people who are able to pay back the loan. For credit cards, you want a mixture of people, some who will have a high throughput and rack up a load of transaction fees from the merchant and who can justify to the merchants that they'd lose business if they didn't accept cards (I put about £20K on my credit card each year, mostly business expenses, and get very good customer service - everything I've complained about has been resolved immediately and followed up with a goodwill payment to apologise), and some who will serve as long-term income sources by running up a smallish debt that they can't pay and effectively paying the interest in perpetuity.

Re:I have no debt and a hefty savings account

[TheDarkMaster]

Only 20% in a year? On Brazil the "Banco do Brasil" (Bank of Brazil) the interest rate on a year is more than 350% (link), and all other banks are engaged in similar rates (or worse). Yeah, I live in a shithole...

Re:I have no debt and a hefty savings account

[swb]

Lenders are the clients of the credit reporting system, you are merely the product. Lenders make more money if they can charge you a higher interest rate.

Therefore, credit reporting agencies have a vested interest in biasing everyone's credit risk upwards because it makes *their* scoring system more profitable.

I have no doubt that banks internally rank the loan profitability of all the credit reporting agencies. If banks analyze their loan data by credit reporting agency used and agency A and B both have the same default rate, but B biases all credit reports to be slightly more negative, the banks will see loans made with agency B scores as more profitable than A scores.

Now the bank will funnel more scores through B than A, even though A is just as safe from a risk perspective, it's less profitable. This works even if they have a policy of querying all agencies for every loan, they will chose the credit "risk" that makes them the most money.

This is basically a tax on every borrower and there's little means to escape it, since all banks use the same agencies and have the same motivation.

The credit reporting agencies bias there data against borrowers through intentionally sloppy record keeping -- assuming negative data to be true and requiring burdensome and difficult steps to obtain and challenge bad data.

The only way to fix this is through more regulation. Greater transparency -- you have to show me ALL the data you use to compile my score, not some filtered subset. The credit score has to be a number that can be explained and understood based on the data -- no "proprietary" scoring formulas whose calculations are a trade secret and only explained under NDA. If I challenge an item, you have to remove it unless you can provide documentary evidence in 30 days -- not just some EDI data in a database.

Re:I have no debt and a hefty savings account

[jabuzz]

There is no reason to wait till your statement. You can go an pay money in during the middle of the month if you want. It will be credited to your account immediately. Also if you want to but a bicycle for $1100 and your credit limit is $1000 then just go an pay $200 into the account *BEFORE* you buy the bike, that way your account won't exceed the credit limit. I have used that method in the past to buy items beyond my credit limit when I was a student, specifically a PC.

My experience is that your credit limit gets raised if you spend a lot of money on your credit card (at least here in the UK). That said my current limit is some stupid multiple of my monthly income and it is many years since I have been anywhere near the limit.

Re:I have no debt and a hefty savings account

[hattig]

They _want_ people who arn't completely broke but can't afford the credit so they'll keep making minimum payments forever.

Of course. It comes down to affordability, and they want people to max out their credit to the point where they can barely make the minimum payments. I bet they call this a "sweet spot of consumer debt".

For example, once you have a bunch of credit card debt, you will realise at some point that the minimum payments are weighing you down, and you will consider maybe getting a long-term loan to consolidate the debt to make things more affordable. E.g., 30K of credit card debt might have a minimum repayment of 700 per month, a 30K 10 year loan at 10% could reduce that to 400 per month (don't worry about the total repayable here, this is about month-to-month affordability). You'd be 300 per month better off, you could use that to clear other commitments.

However, you will not be able to get the loan, because they take your existing credit commitments (the ones you want to pay off) into account to see if you can afford it. I.e., "Can you afford X (700) + Y (400)" each month, when the reality is you would only be paying Y. This is all baked into the credit assessment system, it's all based on affordability (and not the amount of debt you have already). And they don't trust you to not blow the Y on hookers and gaming PCs instead of clearing X, yet they will not offer a service to directly pay off the consolidated debt themselves. If you're at your affordability limit at 700, there's no way you can afford 1100, so they fail you, consistently.

So it's a multi-year game to get out of a bad debt situation. You need to get any type of loan, over a long term, to reduce the monthly payments as I gave an example of above. But your low credit score means you get high rates. Regardless, once you have it and clear some credit card debt (settle the highest rate accounts in order, preferably), it theoretically increases your credit score because you can technically afford more debt repayments each month (!). Of course, you should use the improved score to get a lower-rate loan to pay off the first loan and any other credit card debt you have still. This takes a long time of juggling, and 0% offer credit cards.

On the other hand, they arn't forcing people to use their credit cards beyond their means. Personally I've managed to never pay interest on any of mine.

So yeah, a good lesson is to not get into debt in the first place, and never have to learn the above. But that doesn't happen all the time - debt can happen for any reason that's not necessarily the fault of the debtor (e.g., in the US - medical bills). So you max out three credit cards, and then you're in the shit, even if you have assets, a good wage, etc. And the system does feel like it's set up like a Sarlac Pit - easy to fall into, hard to get out.

Other rules: always pay secured debt (set the payment date to your wage payment date if possible) before unsecured debt. Always pay the highest rate debt off first, if you have to choose. Be proactive when you see a problem developing, sort it out before you hit the affordability ceiling detailed above. Any step to reducing monthly outlay is better than sitting worrying about whether or not to accept that loan offer that you feel is at a rather high rate (but don't accept one with poor early repayment penalties) but would still reduce your monthly outgoings significantly.

If you'll be in monetary pain for a year, noodles and pasta and rice all the time is a reasonable penalty for the short period of time. If you'll be in monetary pain for five years, etc, then plan in some contingency for regular fun and nice meals, drinks, etc.

Re:I have no debt and a hefty savings account

[NostalgiaForInfinity]

If the mortgage decision was just between you and your bank and your bank actually took a financial risk, like it used to be, they'd mostly be relying on their own information.

But mortgages aren't really made by banks anymore, they are simply highly paid data collectors; those mortgages will eventually be held by the federal government. For your bank to certify to the federal government how much you pay in rent or what your income is is just an additional and unnecessary legal risk. It is simpler and safer for them to have you certify and sign for all your financial information yourself, because if there's a problem with your mortgage, they can then point at you.

Re:I have no debt and a hefty savings account

[operagost]

You basically can't, now. Barney Frank and his cohorts, as a parting gift, implemented a law that discriminates against 18-21 year olds and makes them essentially unable to obtain credit cards. They did this for your own good, you know.

Re:I have no debt and a hefty savings account

[Githaron]

Credit cards aren't a system to make payments easier.

Except they are. Credit card companies charge merchants fees in order to be part of their network. As long as you are spending with their cards, they are making money by having you as a customer regardless of the fact that you are not allowing your balance to incur interest.

Re:I have no debt and a hefty savings account

[DrXym]

The issuer (by here I mean Visa + Bank) skims 1-2% off every transaction in merchant fees to cover their costs. If someone is spending $20,000 on their card then the issuer has made $200-400 for simply moving money around between a few columns.

But obviously they'd prefer that if a card holder borrows $20,000 over the year and struggles to pay off the debt so they can charge them ursurious rates of interest and other fees.

That said, I'm sure it's a fine line and credit card companies have some kind of blended risk model to ensure that they're always maximizing their return and minimizing the number of deadbeats they attract.

Re:I have no debt and a hefty savings account

[thoromyr]

A point of clarification: the credit card *never* loses money on a cardholder. Merchants have to pay the issuer for every transaction. This more than covers the issuers fixed costs.

However, consider two customers who buy exactly the same amount each month. Customer A earns the card issuer $5 in merchant processing fees, but because he pays off the amount at the end of the month there is no interest. Over the course of a year the issuer will only make $60.

Customer B also earns the issuer $5 in merchant processing fees, but only makes the minimum payment of $300 so there is an interest gain of $45. With the same credit limit and both maxing it out, customer B only manages an additional $1/month in merchant processing fees for the rest of the year, but the total take is over $556.

If customer A only earns you $60 and customer B earns you $556 -- which customer do you prefer?

Now comes the fun part. If you raise customer A's limit you will get only a marginal profit increase if they fully utilize it. If you double it from a $3000 limit to $6000 you have increased volume you only get another $60. But if you double customer B's limit then you get another $556.

And the funny thing is, people who max their card will max it out again soon after a limit increase. *And* they will usually keep making the (new, higher) monthly payments. Of course, there *is* a limit. Which is why an issuer won't double the limit, they use smaller increases instead. But getting near that limit is really good for the issuer. Not just from maximizing the minimum payment, but from fees.

Eventually, customer B will have a bad month and not make the minimum payment. Maybe they'll forget the payment, maybe a medical expense, maybe their car broke down. Whatever it was, it will be an unavoidable expense. So instead of only making $45 from accrued interest, they get another $50 from a late payment. Oh, but that bumped the card over the limit, which is another $50 fee.

For the issuer, this is a wonderful situation because they get all of the benefits of a higher monthly payment without any of the risk associated with a higher balance. If customer B gets caught up at some point then its time to increase their limit (if you haven't already speculatively done so) in order to make it easier for them to miss a payment.

Yes, numbers provided are not exact. But they are in the ball park. I used 18% APR, but I've seen cards with over 24%. I've seen low interest cards though I've never had one myself: I pay the balance off each month so I'm "high risk" for them ever seeing a profit and consequently only get offers for high interest/annual fee cards. But things will change if ever have trouble making payments....

Re: I have no debt and a hefty savings account

[bws111]

There is no 'market failure', there are just a bunch of idiots who take the high rate cards that get sent to them. Shop around. Both credit unions I belong to offer no-fee Visa cards (with rewards) with under 10% interest rates.

Re:I have no debt and a hefty savings account

[NateTech]

Agreed. We've paid off everything every month for well over a decade, pushing two. They love us. The reason is -- they get money from the merchants just for us using the cards. (The original business model of the cards, long before exorbitant interest rates and penalties.)

They especially love us when we run large items through a card and pay them off.

Considering most good cash back or points cards give roughly 3% of the value of the purchase back to the card holder, that would indicate to me that the merchant is paying at *least* 5% and the card company is keeping 2% or so.

The very nature of the transaction being against small business, whenever we do business with a small business or friends, we pay them in cash. No point in them eating 5%+ of the sale so I can have 3% of it as a cash-back award, and the card company can have 2%. But large businesses that make it easier to pay them with a card than pay them cash? They can eat it... even though we know they simply pass it back to us as a higher price tag.

Words with multiple meanings

[darkain]

I just wasted some n00bs in that FPS match, y0!!!

OH SHIT, THERE WENT MY CREDIT SCORE.... but at least I scored in the game!!! (but yet to score in real life...)

Attention all wasters

[frup]

Please revert to the terminology of trashed. This is in relation to bug that was found in the social media freedom index. Testing so far reports it temporarily fixes the problem. Stay tuned for further updates.

The Internet is turning into War Games

[istartedi]

The only winning move is not to play.

Re:The Internet is turning into War Games

[Jane Q. Public]

Yeah, starting with the credit companies.

Whoever came up with this...

[gman003]

has wasted their time.

Problem with Artifical Stupidity: discrimination

[joe_frisch]

Its possible to come up with algorithms that are statistically valid, but discriminatory. For example, in the US African Americans are on average lower income than whites,so it it is likely that average they are less able to repay debts. Anything that correlates with race might statistically be valid, but is racist and if done explicitly would violate all sorts of laws. How do you prove that you are not using proxies for race, or other protected classes in an analysis like this.

Systems that analyze the behavior of friends have a similar problem: people from disadvantaged cultures will have a more difficult time receiving loans, getting jobs etc, not because of what they personally did, but because of what people of their culture did. This is the basis of racism.

Let use some l33t speak

[future assassin]

I was Wa$t3d last night.

What does it do to your credit score

[thinkwaitfast]

if you don't have a facebook account?

Re:What does it do to your credit score

[Assoluto]

Probably increases it immensely. It shows you can see that costs of using Facebook are far greater than the benefits it offers. A person who can make such a judgement is likely better at managing their finances compared with somebody who willingly hands over their information in exchange for the opportunity to broadcast aspects of their personal lives to the world.

So nobody read the article, or even the summary

[GrandCow]

"Lansing said FICO is working with credit card companies to use several different methods for deciding what size loans people can handle, and using non-traditional sources like social media allows them to collect information on people who don't have an in-depth credit history. According to the FT, both FICO and TransUnion have had to find alternative ways to assess people who don't have a traditional credit profile -- including people who haven't borrowed enough to give creditors an idea of what kind of risk they pose."

So this has a nonzero effect on your credit score, but for anyone with a legitimate history (aka any credit card or loan ever) the effect will be so small that it would be considered negligible. What the hell do you people want? If I was an employer looking up peoples names on Facebook, like is common these days, and found out that the person was posting pictures of getting high/drunk on a regular basis or posting really horrible comments, I'd refuse to hire them too. The same applies to credit cards. Some random person with no references walks into my bank and says, "Hey give me $1000, I'm good for it". What should my response be, seriously?

"Can you prove in any way that I can depend on you to pay me back?"

If you don't want to be judged by your social profile, make it private or don't fucking post it in the first place.

Facebook privacy

[Wootery]

But if you lock-down your Facebook account properly, how can they have any idea if you're using the word 'wasted'? Do they pay Facebook for unlimited access or something?

The article doesn't even think to mention this, and I'm surprised no-one here seems to have mentioned it either.

Re:Facebook privacy

[bluegutang]

If you use the word "wasted" AND you are incapable of locking down your FB account, you probably ARE likely to default on your debt.

Re:Facebook privacy

[MobyDisk]

THIS IS A REALLY IMPORTANT QUESTION! How can the article not address this?

Do they pay Facebook for unlimited access or something?

I can think of a few ways:

First, if you install any Facebook games/apps, they mine your data. I believe that is the entire purpose of them. You would have to read the individual EULAs to see what they gather. This seems like the easiest way because they can get everything.

According to this article from 2012 "Facebook is Using You" they do give out aggregate data, which can affect your credit score.

Your application for credit could be declined not on the basis of your own finances or credit history, but on the basis of aggregate data — what other people whose likes and dislikes are similar to yours have done. If guitar players or divorcing couples are more likely to renege on their credit-card bills, then the fact that you’ve looked at guitar ads or sent an e-mail to a divorce lawyer might cause a data aggregator to classify you as less credit-worthy. When an Atlanta man returned from his honeymoon, he found that his credit limit had been lowered to $3,800 from $10,800. The switch was not based on anything he had done but on aggregate data. A letter from the company told him, “Other customers who have used their card at establishments where you recently shopped have a poor repayment history with American Express.”

Re:Car & House

[nitehawk214]

You are buying the wrong kind of car.

Re: So people not using privacy settings...

[lpevey]

Privacy settings control whether the general public sees information. It does prevent Facebook from selling the information for profit (which it does).

Rewards card

[tepples]

The $3 (or whatever) transaction fee goes to the transaction processor for handling the transaction. The interest payments (if any) go to the lending institution (for actually putting up the money that gets loaned out).

Not all of the transaction fee goes to the transaction processor. A fraction goes to the lending institution. And it is from this fraction that lending institutions are able to offer cash back or travel rewards to those cardmembers most able to repay.