NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, June 21, 2016

What if you had to choose between keeping your Facebook friends and getting a home equity line of credit? What if your student loans could not be refinanced until you cut certain relatives out of your digital life?

Such decision-making scenarios could happen as fintech companies increasingly crunch alternative data to help determine a would-be borrower’s creditworthiness.

As discussed in a recent American Banker article, some marketplace lenders are ditching FICO scores for data-driven business models that analyze behavioral as well as social information from a variety of online sources to determine applicants’ creditworthiness. Kabbage, Social Finance (SoFi) and InVenture are among the companies that use information such as purchasing habits, employment records and even mobile-texting patterns to determine creditworthiness.

Companies like Lenddo, Kreditech, Hello Soda and Earnest, meanwhile, are designed around the notion that data about one’s social circles holds a financially predictive promise; therefore, they incorporate the data in their credit models.