The Potential Effects Of Social Media Activity On Your Credit

 

 

Social media is known for socializing but it has morphed into much more than that.  Nowadays, social media can have a very real impact on your credit and your ability to get a loan.  Companies are looking to social media sites when making lending decisions.  They are looking to confirm not only the identity of the borrower but to also determine creditworthiness.

Furthermore,  FICO (Fair Isaac Corporation) has interest in making social media activity a determining factor when it comes to credit scoring.  What does this all mean for you the consumer?  You need to be concerned about your financial reputation on social media.   We are already seeing financial impacts for people when it comes to employment.  Most employers are looking to a candidate's social media activity as a part of their hiring decisions.

In addition, those with poor credit should be most concerned about improving their financial reputation on social media. Social media is becoming more and more the go to for creditors as a scoring metric when deciding to make credit available for those with poor credit who would normally be denied.

Before we dive into the social media side of credit scoring, we should discuss what goes into your traditional credit score as of 2018.

What makes up your FICO credit score  

When it comes to credit scores, the most popular is the FICO score.   The range goes from 300 on the lower end to a max of 850 at the higher end.  A credit score of 700 or more is considered good and if you have above 760, you have great credit.  Now lets breakdown how they come up with a credit score.  There are 5 factors they look at with a certain percentage assigned to each:

  • Payment history (35%): Paying your bills on time is the most important component of having a good FICO score.  When you make timely and consistent payments, you will not only help maintain your score but quickly boost it if you have poor credit.
  • Credit utilization (30%): Lenders want to know you are responsible with your credit, so they take into account what percentage of your total available credit you are using at any given time.  This should be no higher than 30%.  In some instances, your credit score may take a hit if you go above a 30% utilization ratio.
  • Length of credit history (15%): Lenders want to be able to determine how good of a consumer you are by looking at your credit history and whether you have paid your bills on time.  The more stuff that is on your report..the more they are able to paint a picture of your financial habits.
  • New credit accounts (10%): Every time you open a new line of credit or you try to open an account, your credit scores takes a hit.  This is considered a hard inquiry into your credit report.  In order to avoid this, you should only open an account when it makes financial sense.  That means stay away from opening that GAP card  just because they are offering you an additional 25% off your purchase for that day.
  • Credit mix (10%): This one basically looks at how you handle payments for both installment loans which are a fixed amount each month (like a mortgage) and revolving loans (like amount on a credit card which can fluctuate).

Now that we have given some background on what makes up your credit score, let's dive into what lenders are going to be looking at when it comes to your online presence:

  • Work history: When filling out a loan application, you are normally asked to provide your employers information and some may ask for additional details of your work history.  Lenders are now comparing what you put on your loan application to what they find on sites like Facebook and LinkedIn.
  • Layoffs and terminations: If you have recently lost your job but didn't make that clear on your application, the trail you leave on social media can let the cat out of the bag.  Posting that you are looking for a job or that you have just lost yours would tell lenders you are not currently employed.
  • Negative reviews: If you are a business trying to secure a loan, lending companies are looking at the type of reviews your business is receiving online.  Those with enough negative reviews may have a problem securing credit.

Tips for managing your reputation on social media

So what is the best way to manage your social media presence?  Much of the advice that you would apply to managing your reputation is relevant here.  This means watching who you have as friends, avoiding any profanity or questionable photos, keeping your opinions and attitude on the positive side.  What you do want to do is fill your network with solid and influential people and share content that puts you in a positive light.  Here are some things to keep in mind:

  • Be careful of who is on your friends list: Clean up your friends list.  Take off those you don't really know all that well.  Having questionable friends on your list can affect you getting a loan if you need one.
  • Every profile matters: Take into account all of your social media accounts as they can all fall under a social scoring method.  So make sure that each profile is accurate and there are no warning flags.
  • Stay away from aggressive posting:  No one likes a troll online so be sure to keep your behavior in check by staying away from aggressive or offensive posts.  This type of behavior would be viewed as socially irresponsible and could negatively affect your creditworthiness.
  • Make sure your work history is accurate: Sites like Indeed, Monster, Facebook and LinkedIn all show some details surrounding your work history.  Employers will match all those work details to your application so make sure it is accurate.   You of course do not have to add this information to your online social media profiles but lenders may feel more confident in making a credit decision for you if it is.  This is especially true if you have poor credit.
  • Watch what you share about your job: When it comes to sharing things about work, stick to the positive.  Awards, promotions etc.  You don't want to talk about needing a job or your boss/company in a negative light  unless you are okay with lenders seeing it.
  • Establish positive reviews: Having good reviews online is important whether you’re a business or an individual.  They show a sense of responsibility and lenders value that.  If you are business that is going to be looking to secure a loan at some point, start boosting up your positive reputation online.   For individuals, positive reviews are important for you too.  Your activity on e-commerce sites like Etsy or eBay can be looked at as evidence of your creditworthiness.
  • Be proactive: Take the time to show that you take your financial reputation seriously.  Follow financial blogs and those Facebook profiles of authors, companies and leaders that encourage good financial habits.
  • Register Your Name Online:  In an effort to have more control over your own name, you should register it as an online domain. By doing this, you have control over what information surrounds your name.

Final thoughts

Whether you are an individual or a business, your social media presence will not be the main factor when a lender is determining creditworthiness, but it is becoming increasingly more important.   With the vast amount of available online data, more and more banks and alternative lenders are seeing the benefit of considering it as a factor for creditworthiness.  We are living in an economy where reputation is becoming increasingly more important, so take the time now to take stock in yours.

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