Your behaviour on social media can impact your ability to borrow, regardless of whether you have a good or excellent credit score.
iFinance Canada, a small-ticket consumer loan company that dishes out loans that average between $5,00 and $40,000 is calling for an overhaul of the existing credit rating system in Canada, which is the primary way a person’s ability to pay back a loan is assessed.
Instead of merely relying on a person’s credit score, iFinance Canada uses a “reputation score” for potential borrowers — anecdotal factors such as the lifestyle you portray on social media and references you get from a former employer are factored into your “reputation score”.
“If someone puts up something extreme on social media, such as them buying a really expensive suit, or running up an extravagant tab at a restaurant or bar, that information is out there and can be used to determine your worthiness as a borrower,” Ann Kaplan, President and CEO of iFinance Canada told VICE Money.
Companies like iFinance Canada lend out small sums of money for Canadians who need a quick line of cash for things like medical procedures, or unexpected dental treatment. Applicants fill out forms on paper, online or on a smartphone or tablet device. This application is then assessed by iFinance Canada officers to determine credit eligibility.
“There’s only so much you know about a person from an online application, and there’s only so much you can get from a credit score, so we use additional information to make decisions. More specifically, we use an algorithm called CHAI – Credit History and Additional Information. That way, if we have concerns, we check publicly available information, such as social media, to make a decision about an applicant and cross reference for possible fraud.” said Kaplan.
Social media is increasingly becoming an information trove for lenders who need more than just a credit score to determine if someone is worthy of a loan. A recent assessment by credit monitoring agency Equifax deemed 71 percent of Canadians to have “good or excellent” credit scores.
Yet, that doesn’t quite fit into our overall debt picture. Canada’s household debt is at the highest level it has ever been — for every dollar earned, we owe $1.67. We have the highest household debt level in the G7 and much of that debt is mortgage-related. Just 51 percent of mortgage holders have “$5000 or less” to set aside in a financial emergency, according to a Manulife survey. Worse still, 15 percent of Canadians say they won’t be able to handle any kind of increase in mortgage payments, in the event of an interest rate hike.
Toronto-based small business lender Lendified uses an algorithm that reviews “financial ratios and a client’s social media footprint, alongside a deep web search of some 800 databases that red-flag undesirable clients.” Approximately one-third of the credit applications received by Lendified, comes from millennial entrepreneurs aged between 25 and 35 — most of those applications are sent it via smartphone or tablet devices, outside normal banking hours or on weekends, according to a Financial Post article on the company.
The key, for lenders, is not just to ensure that a person has an authentic identity, but to be able to make inferences about a person’s character based on the circle of friends in their network, and the kind of lifestyle they lead. “Creditors may look for red flags such as excessive time spent at bars or casinos, which might signify that a person could be a high-risk applicant,” says a blog post on Lendified’s website.
Earlier this year, it was reported that the Canada Revenue Agency also monitors Canadians’ Twitter and Facebook as part of audit investigations. “The CRA does practice risk-based compliance, so for taxpayers identified as high-risk, any relevant publicly available information relating to the specific risk based factors for the taxpayer may be consulted as part of our fact gathering processes, including public social media accounts,” said a statement released by the agency in January 2017.
Alternative lenders, especially those who lend money to small businesses may also look when and how often a person uses social media. “Filling a loan application at 4am could be a sign of desperation,” Steven Uster, CEO of FundThrough told the Globe and Mail recently.
According to Uster, having thousands of Facebook friends or LinkedIn connections may be an indication too much time is spent online — and not enough time is spent focused on actual business operations.
But the fact of the matter is, bankruptcy levels in Canada have gone up, and a credit score alone might not be a sufficient way to assess how robust a person’s finances are. “My argument is that we need to factor in other variables to build a person’s credit score,” says Kaplan.
“It’s important to show off your stability. If a lender finds out you that you’ve say, moved very often and can’t hold a house for more than a few months, that could be a huge red flag when it comes to obtaining credit. As it should be.”