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]

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

[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

[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

[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

[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....

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.

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.

What does it do to your credit score

[thinkwaitfast]

if you don't have a facebook account?

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

[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.”