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Can Social Media Affect Your Credit Score?
We live in a society where our financial transactions are reduced to a simple three-digit number. If you ask, no one will be able to tell you exactly how this number is calculated but it affects everything you do - from getting a job to securing a home mortgage.
Everyone looks at your credit score - from potential employers to financial lending institutes but the average person still doesn't know what makes up their credit score. The one thing that everyone does know though, is that we need a high credit score if we want to get ahead.
How Is The Mysterious Credit Score Calculated?
While the actual algorithm is a bit of a mystery we do know the most commonly looked at aspects that make up your credit score:
- Payment history. This typically makes up about 35% of your credit score and is generally considered an indicator of how you will handle your bill payments in the future.
- Personal debt level accounts for 30% of your credit score. The closer you are to your debt limits the lower your score will be.
- Your credit history is worth 15%. The longer your credit history the better this score will be since you have more data to evaluate.
- Credit inquiries make up 10% of your credit score. Typically it is felt that if your credit score is being checked often then you are applying for credit and if you do this often then you are taking on a lot of debt.
- Your personal mix of credit is also worth 10% of your credit score. Different types of accounts are considered good since it shows that you have experience with varied types of credit.
Until recently this was the only information available to companies that collect and compile credit score data. Now with the growth of the Internet and the popularity of social media sites like Facebook, a whole new source of data is available.
Social Media and Data Collection
Our actions on sites like Facebook can say a lot about our personality. Many of us don't even realize how much personal information we are giving out. True, we've been conditioned not to put our home address, phone number or credit card information in public places but our social lives are pretty public.
What would happen if - as the German equivalent of our credit scorers proposed - data collection agencies (the ones that compile our credit scores) were allowed to glean personal information from social media sites? What if they were allowed to make assumptions about your personality based on your activity?
What if they were able to look at your 'LIKES', who you are 'FRIENDS' with and what you are ranting about? What kind of assumptions could they make about you?
Does your love of true crime novels make you a potential sociopath? If you are ranting about the cost of living and wanting to do something about it - does that indicate you are going to default on your loan?
Just how much of a financial risk would you be perceived to be?
It's a scary thought isn't it?
Thankfully, the German people squashed this idea - for the time being. However, now that the seed has been planted - how long will it be before it is reality? Maybe instead of having just a credit score you will also have a social score to worry about.
Perhaps George Orwell was more right than he ever imagined with his novel 1994 and his fictional character - Big Brother - who watched everything you did. If we allow our on-line, social activities to be used to develop a social profile that affects our ability to get credit or a job - then we may just be heading in that direction.