Oct 03, 2013 Simon Williams
As the old adage goes, you're known by the company you keep. But these days, so many of us are "friends" with people on social media sites whom we haven't seen in years. Sometimes we use these sites to reconnect with individuals we knew when we were children and get a quick update on what they've been up to since high school, though they shouldn't be lumped into our core friend groups.
However, some reports have emerged suggesting that lending companies in the United Kingdom are checking applicants' connections on Facebook and partially judging their worth as borrowers based on the individuals they're friends with.
Since lending was such a popular avenue during the Great Recession, many have turned to it in the more recent years of recovery, but stories of this nature could leave some individuals questioning the practices of companies in the industry.
Are your friends in debt?
According to The Telegraph, the main motivation behind more traditional lenders' strategy to look into individuals' Facebook friends is to see if some of their acquaintances are in debt. The news source said that if a number of connections on such websites raise red flags in terms of indebtedness, some lenders assume that an applicant is going to present a large lending risk.
"The assumption is that creditworthy people tend to socialize together, and vice-versa," the news source specified.
This is not the first time lenders have leveraged this method of approving applicants, the newspaper stated, noting that companies in the Philippines and Mexico have also taken similar tactics. In the U.K., however, The Telegraph reported that many other forms of alternatively scrutinizing an application have become popular, but this sort of strategy is not indicative of the methods used by all alternative or traditional lenders.
For instance, The Daily Mail reported that an increasing number of lending companies are taking into account a person's presence on payment websites like eBay or Amazon.
There are still rules
Should a short term lender consider factoring information available on social media sites into the application process, he or she should know that there are still set rules. For instance, The Telegraph detailed that lenders can ask applicants to put down friends as references, consider how influential potential borrowers are on networking sites and see if some of their contacts are also borrowers.
That being said, these institutions cannot start credit checks on a person's Facebook friends without his or her approval. Moreover, it's exceedingly important that no short term lending agent contacts an acquaintance of an applicant without express permission.
Alternative is still an option
Despite the current stigma facing lenders, consumers still have a number of alternative finance options should they seek out loans.
Individuals may get a fairer deal if they go to a small dollar lender for their credit needs, as these alternative institutions tend to paint a more comprehensive picture of an individual borrower. Rather that simply judging a consumer's credit worthiness on traditional credit scores, these companies often take other factors into account.
For instance, a number of such businesses use the Payment Reporting Builds Credit scoring model. This allows U.K. lenders to factor in a positive history of repayment on utilities accounts into applications, which can help individuals who have gone through tough times but are reliable gain access to credit.
Despite the actions of a few within the industry, many short term lenders are willing to go above and beyond to help consumers when they need fast cash to make ends meet or deal with an unexpected expense.