Traditional lenders determine a person’s credit score through payment history, but several tech startups believe your social connections on Facebook can help you or hurt you.
Aaron Brown with Box Home Loans in Lindon said it is an old fashioned way of thinking turned modern.
“They’re kind of going back in time to what used to be the determining factor for everything and that's an individual's reputation,” Brown said.
One such company is Lenddo, which operated in the Philippines, Columbia and Mexico. They determine if you are Facebook friends with someone who was late paying back a loan to Lenddo, which could hurt your chances of getting a loan.
A German company called Kreditech uses a person’s computer location and online data habits when looking at a loan application.
“I’m excited to see how it empowers people in those third world countries who don't have access to credit and see what it does for them,” Brown said.
But there are a lot of unknowns.
Brown said Box Home Loans is a traditional lender in Utah, so he is curious to find out how these businesses handle a person who misses their payments.
“Our culture in the U.S. is one where if you don't pay on your debt there's always bankruptcy,” he said.
According to a CNN article, using “big data” to assess credit risk is on the verge of going mainstream in other parts of the world.
Brown said it will be fun to watch how it all progresses, but he really can’t see the concept ever happening in the U.S.
“I think it's terrific,” Brown added. “I just don't think it works in our culture.”