When will banks return to former levels of lending? Lending, or the lack of, has remained one of the hottest post-recession topics. It’s hard for small businesses to get loans these days, which hurts the economy as a whole. Even for people with perfect financial records are having a hard time securing funds. Maybe Lending Club is a good way to go for small businesses since the big banks are shutting them out.
If I couldn’t find other funding for my small business, I would definitely consider Lending Club. Of course, I’d make sure I set everything up properly so I wasn’t liable, the rates you can get there are pretty decent compared with the alternatives. Don’t go the credit card funding route, the rates are exorbitant, and that compounding interest can be a killer.
The Best Indicators of Risk
When I worked for a large auto insurance company, I found out that the best indicator of whether someone would file a claim was their credit score. Those who are more responsible with their credit are apparently more responsible with their cars, too. Who knew?
Similarly, credit companies are looking for the best indicators of whether people will pay back their loans on time. Some are looking closely at an applicant’s social media activity and taking that into consideration when assessing whether an individual should receive credit.
They are looking mostly at people who don’t have a perfect credit history, but otherwise would make good candidates. By gathering data in the application process around number of Facebook friends and car registration, social media monitoring for credit scoring purposes can be really useful. It’s a relatively new practice and for now, companies aren’t putting too much weight on these types of variables.
The Concerns of Using Social Media To Extend Credit
There’s also the potential for gaming the system. It’s easy to buy or fake twitter and Facebook followers and I’m sure that those who are more tech savvy and can pay for likes and friends aren’t more deserving of having credit extended.
Whether looking at social media is ethical is open to debate – although there is no doubt that it is flawed. It is normal for people to be friends with others on social networking sites that they do not actually know well, and so for credit scores to be evaluated on the merit of one’s contacts could be very subjective.
Finally, it brings up a good question: if applicants were made aware that their social media activity would be analyzed prior to their being accepted for a loan, would as many people apply? Or would you only get applications from people with high quality social media contacts?