Can Your Friends Affect Your Chances of Getting a Loan?

“You’re only as good as the company you keep.” In other words, your friends say a lot about you. Financial companies have that quote in mind as they seek out alternative ways to judge your financial prowess, especially your ability to repay debt.

Although the FICO credit score remains the standard metric for gauging a consumer’s credit risk by the financial industry, some lenders are taking a person’s social circle into consideration. Lenddo is one lending company that uses a prospective borrower’s Facebook network to measure his or her trustworthiness, reported CNN Money.

Lenddo factors in a person’s Facebook, Twitter, LinkedIn and other social network connections to calculate a person’s LenddoScore, a proprietary credit scoring model. The LenddoScore of your friends and connections will have an effect on your own LenddoScore -- the more social activity with a connection, the more that connection’s LenddoScore will affect you.

Moven, another young financial outfit, uses social network reputation to generate a customer’s CRED profile, an overview of a person’s financial health. Although Moven simply offers a transaction account now, such data from social media accounts could help to improve a customer’s chances of obtaining a loan or a credit card in the future.

While more companies seem to embrace the idea of using social connections to calculate a borrower’s risk, there are hurdles to overcome before it goes mainstream, if at all.

Unlike the financial data (i.e. payment histories, debt balances, credit limits, etc.) used by most credit-scoring models, social network reputations can be gamed and subjected to manipulation. Relying on such social data may introduce more risk that lenders are willing to handle.

Then, there’s the actual correlation between social interactions and ability to repay debt. Even though you know you're responsible with money, you may have close friends who are not. In this case, social media-based credit profiling can hurt your chances of getting a loan. You’re better off not sharing your social media accounts with lenders.

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