Lenders are reluctant to disclose what information they take on board when deciding whether or not to say yes to a new customer
Your neighbour’s bad habits, where you live and what you do on social media could be preventing you from getting a mortgage.
Facebook this week blocked plans by Admiral, the insurance company, to analyse motorists’ profiles for clues on how sensible they are. Despite this, financial companies are increasingly making moral judgments about the way customers behave based on personal data, gleaned from what you post on Twitter to the habits of the people next door.
Credit reference agencies and privacy campaigners report that lenders and insurers are using the data you leave behind to build detailed models and algorithms to categorise their customers by “type”. This includes postcode profiling; that is, assessing how creditworthy someone is based on where they live, which could work against anyone applying for a loan, particularly those who do not have a strong personal credit history, or are not on the electoral register. Many banks will make an assessment of whether a potential borrower will default based on what they know about lending habits of others in the local community.
“Banks take the attitude that birds of a feather tend to flock together,” says Justin Basini, the founder and chief executive of ClearScore, the ratings agency. “If you live in an area where the average credit score is poor, this may be held against you.”
James Jones, of the ratings agency Experian, says lenders create geodemographic models based on postcode, and can paint a picture of likely preferences based on census data or lifestyle surveys.
Dr Tom Fisher, the research officer at the human rights group Privacy International, says it is alarming that financial companies are making use of “more intrusive” sources of data to make decisions about our lives.
If you live in an area where the average credit score is poor, this may be held against youJustin Basini, the founder and chief executive of ClearScore
“This is happening under the banner of innovation. It almost always disproportionately affects the most vulnerable in society. The potential for discrimination, based on how we choose to use Facebook or other aspects of our lifestyle, is huge. The social cost of how we talk and communicate, if we always have an eye on how it’ll affect our credit rating, is chilling.”
Postcode profiling could particularly affect young, first-time buyers, one of the groups most likely to have a thin file, but least likely to afford to live in a street where their neighbours have healthy monthly mortgage repayments.
Other groups include those who have just moved to the UK, those who may have relied on a partner to look after banking and credit cards, or older people who have never had a credit card and paid off their mortgage years ago. While there is a perception that your credit score is good unless you damage it, the reality is that lenders need to see that you can get into debt and then handle it sensibly.
Erki Kert, the chief executive of Big Data Scoring, a Fintech company that launched in the UK a year ago, believes scrutiny of online behaviour is a positive way to boost the financial prospects of those with a thin credit file. The company uses algorithms to predict your “expected probability of default” based on tens of thousands of data points gathered from internet sources, including social media, blogs, web pages you have visited or any publicly available information about you online.
This “big data” is provided to lenders, who may rely on it to assess borrowers without a full credit history. Mr Kert says models focus on the overall nature of people’s online profiles, such as how active they are on Facebook or Twitter, what sort of activity that is, and what it says about their personalities. Models may even include what kind of device they are using to access the internet.
Financial companies are reluctant to disclose what information they take on board when deciding whether or not to lend, or insure, a customer.
The right to keep things private shouldn’t be the preserve of those who can afford itPam Cowburn, of the Open Rights Group
“There have been various rumours for a while that the ‘dark arts’ involved in lenders’ credit scoring decisions utilise a multitude of things to assess an applicant’s’ creditworthiness,” says Andrew Montlake, of the mortgage broker Coreco. “Postcode profiling, which does seem to be an unfair guide, may well be one of those tools; for the most part these are closely guarded secrets. “If the information is readily available in the public domain, then lenders are bound to do additional research on people they are about to lend money to. Although nothing has been proven, I would suggest that those looking to apply for a mortgage should be careful about what they [post]. Gambling stories, wild nights out and lavish spending boasts should probably be avoided.”
Pam Cowburn, of the Open Rights Group, says that society needs to consider the ethics of these practices before they become commonplace.
“Big data is often perceived as being able to deliver ‘neutral’ decisions, but algorithms and poor data can perpetuate social biases based on race, gender, religion or sexuality. There’s also a question of transparency. If we don’t know the full criteria being used, how can we appeal against them?” she says
“Young people or those on a low income may feel pushed into sharing their social media data to secure discounts. The right to keep things private shouldn’t be the preserve of those who can afford it.”