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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:

John

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.

Jane

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!)

Craig Le Grice

Published 5 March, 2013 by Craig Le Grice

Craig Le Grice is Global Technology Performance Director at Aegis Media and a contributor to Econsultancy.

4 more posts from this author

Comments (30)

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Andy Palmer

Really?

I spent ages writing a comment that I felt was useful and can only guess that as it wasn't in agreement with the post it got deleted.

So much for discussion

about 3 years ago

Craig Le Grice

Craig Le Grice, Global Technology Performance Director at Aegis Media

Hi Andy. I didn't see your comment come through. (I definitely didn't delete it). Perhaps you can re-post it? Thanks!

about 3 years ago

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Dillon

I know of many companies playing with the idea and a few doing this for risking people in the financial industry.

I do however belief it will all come down to cross referencing all the data, which at this stage I am, not sure is an easy thing to achieve.

Its a little scary to think that our personal details are becoming so exposed!

about 3 years ago

Chris Knowles

Chris Knowles, Web Designer at The Data Octopus

This relies on the belief that people generally give a true account of themselves on social media, where for most people a heavy slab of perception management is employed.

Besides, I'd rather go to Jane's house than John's.

about 3 years ago

dan barker

dan barker, E-Business Consultant at Dan Barker

Great post, Craig.

At a very slight tangent, but this type of thing already exists. Here's a fraud prevention version:

https://www.trustev.com

dan

about 3 years ago

Craig Le Grice

Craig Le Grice, Global Technology Performance Director at Aegis Media

Hi Chris. You're right - but there are lots of ways of getting an accurate picture other than just self-claimed data / usage etc too. Overall, my point is that we should (could) use hybrid data from multiple sources to make such an important judgement call. And that social data is currently entirely ignored by banks (etc).

about 3 years ago

Craig Le Grice

Craig Le Grice, Global Technology Performance Director at Aegis Media

And, you're right, Jane's house is fun!

about 3 years ago

Craig Le Grice

Craig Le Grice, Global Technology Performance Director at Aegis Media

Thanks Dan - great tangent.

about 3 years ago

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Andy Palmer

Hi Craig,

Cool I will try to remember it all!

"I'm sorry to say I think this article will never be more than a pipe dream.

Whilst I empathise with John's situation the banks surely cannot base a mortgage decision on information that doesn't have to be verified by a third party? Or manipulated to show certain behaviour such as check ins?

Although John does seem like he could handle a mortgage, the banks need a system to try to establish if someone is good at paying back debt and unfortunately the credit score system is the best we have at the moment.

yes Jane may seem like a bit of a risk but her record of paying back debt is second to none and that is what the bank wants to hear. Of course should Jane start to fail in her commitments then her score will go down.

Although John and some detractors may think that "Credit? It is the food of the devil" but it may be a case of if you can't beat them join them.

So here is an idea for John. Please not this is not financial advice and you need to consult an expert should you need that.

1) Get a cashback credit card - If you use a site like quidco you could even get money for applying #cashback

2) Buy only essential items on the card such as food and petrol

3) On the same day (or as soon as possible) transfer any spent funds on the card from a current account to a high interest instant access one. This helps by reducing the current account and helping with budgeting through the month.

4) When the credit card bill comes in pay if off with the money in the high interest account

Yes you do need discipline to do this but I think John may have the skills to carry this out.

The benefits are

1) Increased credit useage, this could improve his credit score

2) Cashback on the credit card

3) At the moment when he spends money from his current account the funds are gone and thats it. But should he transfer the funds that he has spent on the card to a high interest account he will get getting more interest than he is currently.

In conclusion, with a bit of effort he may be able to get a mortgage in a few months/years plus he could have a little bit extra cash through the cashback card and the high interest account.

about 3 years ago

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Andy Palmer

Hi Craig,

I wonder if it is because my post is too long? I just tried it again, the post looked there but when I refreshed it had disappeared!

about 3 years ago

Craig Le Grice

Craig Le Grice, Global Technology Performance Director at Aegis Media

Ah, it may be that. I'm not sure but will forward this to the blog moderator :-)

about 3 years ago

Craig Le Grice

Craig Le Grice, Global Technology Performance Director at Aegis Media

Hi Andy. Good points. And I'm definitely not advocating that this date be the only data used to make major decisions and profile consumers. But I do think there's a major place for it in the mix. (Incidentally, one quick glimpse of my LinkedIn profile will assure you I have no time to write articles just for writing's sake!)

about 3 years ago

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Dan Calladine

Maybe it's not that far off - Insurance companies are reportedly using social media to discredit personal injury claims:

https://www.iconoculture.com/SMART/public/view.aspx?ContentID=359034

Just as we use social media searches to get background info on business contacts, its quite possible that banks do use something like this for background on some of their applicants.

about 3 years ago

Graham Charlton

Graham Charlton, Editor in Chief at ClickZ Global

@Andy Sorry about that. We have an auto spam filter which gets it wrong sometimes. I imagine phrases like cashback, credit card etc were the cause in this instance.

Published your comments now.

about 3 years ago

Craig Le Grice

Craig Le Grice, Global Technology Performance Director at Aegis Media

Thanks Dan - great insight.

about 3 years ago

Craig Le Grice

Craig Le Grice, Global Technology Performance Director at Aegis Media

Thanks Graham. Robots, huh!? :-)

about 3 years ago

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Andy Palmer

Hi Craig,

Heh heh I just had a look and yes you are a very busy man!

If there was a way for companies to report such metrics then I agree it would help. But recording that type of data to be verified could be one step away from a real Big Brother existance

about 3 years ago

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Andy Palmer

@ Graham feel free to delete one of the posts then as I wrote a new one and it looks like I have gone mental writing it twice :-)

about 3 years ago

Craig Le Grice

Craig Le Grice, Global Technology Performance Director at Aegis Media

"One step away from a real Big Brother existence"

Thanks Andy - you just wrote the title of my next blog post!

about 3 years ago

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Jeffry Pilcher | The Financial Brand

Bank's business model for lending is all about risk — less risk for them means better rates/terms for you. If banks can figure out how social media could be used to *reliably* minimize risk, they will use it and there will consumers all too happy to get a discount.

The notion of social media as an indicator of loan risk has little to do with self-reported data and a lot more to do with who you are connected to socially. Let's use "Craig" as an example. Craig is connected to 1,000 people across all his social networks. Now let's say 100 of those people have a relationship with Bank X. Bank X knows the credit scores, account balances, loan repayment histories for those 100 people. If you knew that 90 out of Craig's 100 social connections were A-grade credit risks, Bank X might feel more confident about giving Craig a loan. But if only 10 of Craig's friends are A-grade and 50 are D-grade (or worse), Bank X will probably think twice about loaning Craig any money. So what does that mean for Craig? He might want to un-friend any deadbeats in his social networks.

Instead of thinking about "social media credit scores" as a replacement to conventional credit scores, it will help to think of it as supplemental information. Banks will be testing the "birds of a feather" theory.

Does this concept feel "Big Brothery" today? Sure, but you have to remember the trajectory our culture is on: less and less is private, more and more is shared. People 25 years ago could *never imagine* how much stuff people publish publicly about themselves today online.

@Graham - God help me if spam filters start screening comments for words like credit cards and cash back, because that's all my site is about.

about 3 years ago

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Jeffry Pilcher | The Financial Brand

I think I just got spam filtered like Andy...

about 3 years ago

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John Smith

Interesting article. I fully agree that the use of credit scores does not give the full picture.

However, I am very dubious of the 'big brother' approach outlined here. Using social media as a form of behavioural modification is the stuff of Orwellian nightmares.

Cross this Rubicon and who knows where we end up?

There are two issues at play here that do need addressing, but this suggestion borders on lunacy. These are: personal responsibility and responsible bank lending. God forbid we should treat adults as adults. Much better to use whatever means we have to “gather intelligence” on people to basically blackmail them into complying with what a bank believes is good behaviour. But don’t look behind that curtain, because the investment banker on the 48th floor isn’t really a model citizen, either (see Inside Job for more information).

Regarding responsible bank lending, it’s hard to see a way out of a system that preys on those least able to afford credit in order to fund its own bad behaviour. Neither the Obama administration or the UK Government have done anything meaningful to prevent us falling into the traps of the past, such as the sub-prime lending crisis which largely fuelled the mess we’re in. As I write this bankers are on TV saying that if their bonus is cut, salaries will increase. They have us over a barrel and are laughing about it. Until someone gives them more than a time out, nothing is going to change.

about 3 years ago

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Patrick Butler

Hi Craig,

I can't say I'm convinced that allowing banks or other mortgage lenders to assess your financial viability via social media posts is a good idea.

Okay, so you may be able to borrow for a property, but let's say, some way down the line, you decide you want to buy a new car. Maybe you're into following rally drivers or Formula One racing and these interests are expressed on twitter or facebook.

Could this be enough for a lender to turn down your loan application? For that matter, would they even tell you why you were turned down?

Still, you do highlight a means of using Big Data to aid consumers, rather than exploit them. That's the reverse of how Big Data has been used by company's like Target in the US.

I've explored both sides of the coin - quoting your article - here:

https://www.espatial.com/articles/is-big-data-the-new-big-brother/

about 3 years ago

Graham Charlton

Graham Charlton, Editor in Chief at ClickZ Global

@Jeffry - you did, fixed now.

@Andy deleted the first comment...

Damn this spam filter.

about 3 years ago

Craig Le Grice

Craig Le Grice, Global Technology Performance Director at Aegis Media

Thanks Jeffry. You're entirely right. I must start deleting my uncreditworthy friends! (I jest - but good point!)

about 3 years ago

Craig Le Grice

Craig Le Grice, Global Technology Performance Director at Aegis Media

Thanks John and Patrick. You both raise good points. But... I think the fact that we're all debating this to such an extent shows that the current system is agreeably broken. My proposal is that the data we each use / create / produce / manage in our daily lives (both controlled [self posted] and uncontrolled [third party and factual]) could be 'part' of the new solution.

about 3 years ago

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Kevin Gilmartin

This is a very interesting idea, and one which I think should augment the current system as part of a reform.

The fact that data is held for 6 years has never sat well with me; that I should be financially comfortable and earning well at 30, but be punished for being in far poorer circumstances as a student when I was 24 seems very unfair. Six years is a long time to have that mark hanging over your head.

about 3 years ago

Craig Le Grice

Craig Le Grice, Global Technology Performance Director at Aegis Media

Thanks Kevin. That's exactly what I'm talking about... Augmenting existing data practices with new data that's available / potentially available.

about 3 years ago

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www.thethinblueline.net

Hello, this weekend is nice in favor of me, because this point in time i am reading this
enormous educational article here at my house.

about 3 years ago

Craig Le Grice

Craig Le Grice, Global Technology Performance Director at Aegis Media

Thanks Alex. Glad you enjoyed it!

about 3 years ago

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