If you're trying to get a loan or a mortgage right now, a good credit score is essential. But in the near future, banks may look to your phone records or social media history to decide whether you're a credit risk.
Facebook recently secured a patent for a technology which, among other things, could help determine your credit-worthiness based on the friends you keep on the social network. If there are a disproportionate number with poor credit histories, it could affect your chances to secure a loan.
Shannon Lee Simmons is a planner at the New School of Finance, a financial planning firm. She has some concerns with that idea.
"I think that that may even strike fear into the hearts of many people trying to get a loan," she says. "Because maybe you even have a good credit score, but because you hang out with some shady people, now you may not get a loan. And so I think that it may be a return to potential loan discrimination, based off of who you're hanging out with and where you're from."
Simmons says loan discrimination was a significant problem before the era of credit checks. Until around the 1950s, potential borrowers could be rejected for a loan based on a personal bias by a bank employee. Simmons says that led to racist and sexist decision making, which is why the credit score was created.
Cellphone data can be used to determine loan risk
Potential borrowers give the company permission to check their records, and a decision is made after tallying up thousands of data points such as who the user has called, their app purchases, and other mobile transactions.
The company says many of the service's clients don't have a formal credit history, and their cellphones are the only gauge of financial behaviour out there.
Simmons says these developments could benefit those who don't qualify for a loan under a traditional credit check.
The current system, she added, "doesn't leave any room for, 'Well, that was then and I'm a grown up now, I'm a totally different person now, and my whole life situation has changed.'"
Simmons says she often meets clients who made one poor decision when they were young that continues to cost them. She says the ramifications can prevent people from getting ahead financially for much longer than they should.
Social media checks already used in some countries
And while she doesn't necessarily think Facebook friends or cellphone data habits are the best way to determine whether someone should get a loan, she says she's delighted we're now talking about this.
"I'd love to see a more balanced approach," she says. "And I think that these kinds of innovations, and this kind of technology, is the first step in having these conversations."
While such technology hasn't made its way to Canada yet, a similar idea is in practice in already in other countries.
In Mexico, Colombia, and the Philippines, a company called Lenddo analyzes users' Facebook, LinkedIn and Twitter pages to determine credit-worthiness.