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I’m about to move house. Which, as is usual, has involved a painful bank transfer and a lot of paperwork.
One of the steps of self-imposed due diligence I did was to check my credit file. Everything was fine, I had a credit score in the region I expected / hoped and that was the end of it. Contracts done. Property secured.
It got me thinking, though. That one little number is very powerful but, given today’s focus on big data, actually very simplistic in its nature.
For something that can dictate major elements of your life (such as helping the bank decide whether or not you are ‘fit’ to buy a home), the process by which the three main credit reference agencies (Equifax, Experian and Callcredit in the UK) apply a sweeping judgement feels flawed.
I wondered if, instead, social data could provide a more accurate picture of people.
To illustrate this, I want to talk about two of my friends. Anonymously, of course:
Friend one (let’s call him John) has a good job, earns a good salary and is someone you’d generally trust in any situation. In his early 30s, he’s never had credit card debt, he doesn’t gamble, he saves every month, etc.
Every mother would be happy for her daughter to marry him. You get the picture. But John’s credit score is firmly in the “poor” region - which meant that when he tried to buy a flat in 2012, he couldn’t get a mortgage.
Friend two - let’s call her Jane – is 35 and the exact opposite in terms of “profile” to John. Never focused on ambition within her career plan, she hasn’t progressed beyond her fairly junior role, apart from moving agency every year or two.
Her annual income is dwarfed by a mountain of credit card debt (which is more than her annual salary) and her “shopping issues” mean she has zero savings. She’ll sort her situation out one day but openly (and controversially) admits that marrying well is probably Plan A. Her credit score? You guessed it, it’s “very good”.
The reason for the discrepancy in credit scores is simple. John has never had debt so hasn’t been able to “prove himself” as being capable of managing debt. His above-average income counts only so far and his savings balance (and the discipline attached to it) counts for nothing when applying for credit.
On the other hand, Jane makes the minimum repayment on each of her many credit cards, which satisfies the commitments she has made and – as such – is hugely profitable to the banks. They reward her with a credit score that allows her to apply for almost anything she wants.
If she was ever not shopping (!), she could apply for a mortgage based on the same ratio of property value / deposit / salary as John and her credit score would almost certainly see her approved. Which doesn’t quite seem fair, to either of them.
This isn’t an article on financial services or the flaws of banks. Goodness knows there are plenty of those out there. It’s also not about deciding which of my friends is the better person or has the more enviable position. Instead, I make an observation that common sense is nowhere to be seen in this part of the industry.
Social media credit scoring
If I, or the bank, checked John’s public Twitter profile, elements of his lifestyle that could help me form a clear decision on who he is would be clear. He stays in on Friday nights, watching (and Tweeting about) TV to save money.
On Sundays, he checks in at Waitrose on foursquare, highlighting the best way to cook a great value Sunday Roast. Jane’s Twitter feed is a mish mash of shopping, eating out, cocktails, parties, bars and clubs. Anyone with access to a web browser can tell the difference between these two.
Looking further, LinkedIn shows that John is focused, stable and committed to the long term. Jane’s working history is much less so – usually moving to new agencies, without it being for a promotion or bigger account etc, because she knows / met the Creative Director ‘socially’.
A quick Google search for both will show vastly different results too. John’s entire first page is about achievements in his career, trade press coverage and awards won. Jane’s first three entries are public Facebook photos that show her weekends in all too much detail. Any bank making a long term decision on a customer – i.e. the granting of a mortgage – has access to this data, so why don’t they use it?
What would happen if a ‘social data’ approach was adopted by a high street bank?
A mortgage (or any other credit) application process could be much simpler, fairer and representative of someone’s wider existence… You could connect with Facebook, Twitter and LinkedIn and allow the bank to analyse your lifestyle.
That data could be cross-referenced with established credit history, third party data and freely available ethnographic segmentation and could then be re-interrogated as a whole picture. All sorts of socially powered products could emerge from it. Imagine making a mutual promise with the bank that the mortgage you wanted would be in reach if you saved X per month, did Y on a regular basis (validated by location based check-ins) and ticked off list Z (using a dedicated app, for example).
It could be a logical 21st Century version of the discussion you had with bank managers 20 or 30 years ago when you were told (by an actual Bank Manager in an actual branch) to “slow down on the ATM cash withdrawals, save a bit more and come back in six months” for a guaranteed offer.
Credit files are not the only way of understanding your consumer. So why are they the only product used to assess your financial worthiness? We have access to more data now than we ever have. Let’s use it to transform some of the areas that frustrate so many people and make better some of the things that simply don’t work well enough.
(It’s important to note that both ‘John’ and ‘Jane’ read this article before I published it and gave full permission to include the details that I have. I move house at the end of the month and both are still coming to my housewarming party so I obviously didn’t overstep the mark!)