The U.S. patent office granted Facebook an updated patent on technology that would allow lenders to evaluate loan applicants based on their social network connections, reports VentureBeat.
The technology tracks how closely (or not) people are connected. The technology is employed to minimize spam (people sending messages to those with whom they have no relationship) or prevent people from showing up in strangers' search results, according to the "summary of invention" section of the patent. Here's what the summary says about the technology's use for lenders:
"In a fourth embodiment of the invention, the service provider is a lender. When an individual applies for a loan, the lender examines the credit ratings of members of the individual's social network who are connected to the individual through authorized nodes. If the average credit rating of these members is at least a minimum credit score, the lender continues to process the loan application. Otherwise, the loan application is rejected."
Just because the technology is capable of drawing these conclusions doesn't mean lenders will (or are legally able to) use the information in credit decisions, at least in the U.S. It's a complicated issue. Two federal laws mainly protect consumers in this space: the Fair Credit Reporting Act (FCRA) and the Equal Credit Opportunity Act (ECOA).
Credit.com's Gerri Detweiler has delved into how the law can work in this instance:
The FCRA doesn't stop a company from mining and selling data from a consumer's social activities online for credit purposes, but if … the firm is deemed a consumer reporting agency, it will be held to strict standards for disclosure, accuracy and investigation of consumer disputes. …
You also have the ECOA, which prohibits credit discrimination based on race, color, religion, national origin, sex, marital status, age or because you get public assistance. It's possible that social information could inadvertently be used improperly if it falls into one of those categories.
And as for how your friends' credit could potentially affect yours:
Eric King, CEO of Sociogramics, a firm that provides identity verification and scoring solutions for online consumer lending, … thinks the regulatory environment isn't the only reason. Another issue is that this information tends to be "self-reported data," which lenders are reluctant to trust. After all, if the consumer reports it, the consumer can change it.
His prediction is that this kind of information will be used in ways that allow consumers to opt in for more personalized offers. "Who is more likely to buy additional services? That's where you'll see more social (data used)."
For now, if you're trying to improve your credit or thinking of getting a loan in the near future, you will likely benefit most from focusing on aspects that traditionally impact your credit, like making loan payments on time, minimizing your debt, keeping your credit card balances well below the cards' limits and applying for new credit sparingly. Focus on the basics of good credit if you want to work your way to a good credit score and access the best loan products and lowest interest rates. You can also get a free credit report summary every 30 days on Credit.com to track your credit standing.
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