Facebook friends could change your credit score
money.cnn.com
money.cnn.com
Here in Germany it's pretty common.
I'm living in an apartment building where it is impossible to get a credit card. It's not only me - all neighbors I asked have the same problem.
Looks like one of our neighbors has a catastrophic credit rating and is pulling down the rest of us.
I heard similar stories from friends who were able to get a loan only after moving.
Reread the comment. It's exactly what you describe, down to the actual building. People living in a particular apartment complex can't get a credit card.
Morgan Spurlock also had to pay a deposit in his show 30 Days, and he commented about how it was the first time in his life he had to pay a deposit, and it must have been the address he was living in. (He was living with a minimum wage for 30 days in the episode, so he moved into a low rent apartment in Ohio.)
They take average paying morale in a neighborhood into account. But I guess one very bad seed can spoil pull down a otherwise good/average neighborhood.
Image search for "schuldneratlas" (a detailed map of private households in distress) to get some impressions.
Or see there: http://www.boniversum.de/schuldneratlas/
http://en.wikipedia.org/wiki/Commercial_mail_receiving_agenc...
https://ribbs.usps.gov/index.cfm?page=mtcsa
(you can also google for dpv cmra)
Do these creditors think that people have the moral fortitude of five-year-olds?!
They want to make as many loans as possible. The want to loan you money or grant credit. But if they find a correlation that indicates too much risk they'll say no.
The questions then are, is the correlation real, and is doing the correlation legal in the local jurisdiction.
Profiling people (who have nothing to hide) gives banks and insurance companies huge advantage. It may look insane in personal level, but there is solid math behind many of their descisions.
Our society does better when we communicate with each other. As in, "united we stand, divided we fall".
If we are not to turn entirely into a perpetual exercise in "pecking order", there have to be some limits upon what can be "punished" -- commercially or otherwise.
So, take your "social network credit risk" and shove it.
"...in Pembina Consolidated Silver Mining Co. v. Pennsylvania - 125 U.S. 181 (1888), the Court clearly affirmed the doctrine, holding, "Under the designation of 'person' there is no doubt that a private corporation is included [in the Fourteenth Amendment]"
If I had a time machine and could go to the future and see who would pay back their loans and who wouldn't, that would be ideal. But we don't have that, we can only make predictions by looking at data that happened to correlate with that in the past.
No it's not socially acceptable to use certain data points to make decisions, but this has good justification behind it. People will irrationally weigh stuff like race or gender to make decisions even when it doesn't matter. But this is being done by a completely unbiased computer program. And they wouldn't use it if it made their predictions worse. So that reasoning of the predictor being irrational doesn't apply in this case.
And I'm sure the program was written by a completely unbiased computer, too!
if job == 'Lawyer':
score + 100
if poor_people_friends > 150:
score - 100Are you saying the machine doesn't actually rank you according to the data you give it?
Everyone?
LOL
Past history correlates with future performance, but not necessarily 100%. People who have always paid back loans sometimes default. People who have really bad credit sometimes start making payments again. And in any case, it's entirely useless if the person has no past history to look at, which is what this is for.
>Risk is entirely a calculation of the lender, and any miscalculation thereof leads to a vicious cycle of repeatedly shafting the unlucky.
Good thing we are using 21rst century computers and machine learning algorithms on vast amounts of data. At no time in history were lenders able to make predictions so accurately. If there are miscalculations, they are less than would be otherwise.
Perhaps I'm naive, but I hold to the... philosophy, I guess I'll call it for the moment, that most people want a strong community. And that that is aided by people being in touch with each other, including and especially people of different social and economic strata.
Take this proposed ranking to its extreme: You will have people who are ostracized and who perhaps cannot become "un-ostracized" because connecting with them forms not only perhaps a personal risk but also a commercial risk for other parties.
Some societies have versions of this, for example, the caste system.
How "mobile" are people going to be, when every "up-link" to someone of higher standing is cause for a computer somewhere to drag down the status of the up-linked.
We also have problems of this sort in the U.S. with our insurance industry -- I'm thinking at the moment particularly of health insurance. Insurance is supposed to be a pooling of risk and of resources with which to deal with that risk. If you don't take out as much as you put in, count your blessings! You have above average health.
If you need help, it is there for you. "I am my brother's keeper."
In times past, we knew less about diseases. You knew less about what might "get you" and where it was coming from.
These days, we know (somewhat -- less than some arrogant doctors would like you to think) more about diseases. We think we can control some factors -- diet and exercise being prime examples.
We still have to contend with injuries, including injuries that we do not cause, such as some car accidents.
And... your control of "controllable/willpower" factors may be less than some people would think. Live in a "food desert", and fresh produce may be difficult to acquire. Live in certain places in my metropolitan area, and an evening walk for exercise presents its own not inconsiderable risks.
Nonetheless, many people these days seem included to think of insurance as akin to a savings plane. You should get out what you pay in. If not, you're being ripped off!
That's not how it works. That's not how it's intended to work.
Back to social media and risk evaluation. Do I, should I have to evaluate every potential connection for the economic risk it may bring me?
We are close to having ubiquitous surveillance cameras (including ultra-high resolution airframe mounted cameras that can track a vehicle or even a pedestrian across an entire city). Do I have to worry that every chance encounter and conversation on the street may effect not just my political and security rating but also my economic rating? Talk to that bum asking for change, and your credit score goes down 50 points. Ok, you can talk to him/her for a maximum of 20 seconds; any longer, and we will think you have an "un-natural" "affinity" for such a lifestyle.
Bankers can't "red line" in making mortgage loans. Schools (including private ones) can't deny admission upon the basis of race -- nor, in some states, upon sexual preference.
We constantly place limitations upon the scope and focus of commercial evaluations. Social media is a landscape that will have to be dealt with, in this regard.
Yes you are right there is an incentive problem created by this. Once you start measuring something, people start trying to game the measurements. That said, no one is forcing you to make such decisions, or even go to a business that uses such evaluations.
>Bankers can't "red line" in making mortgage loans. Schools (including private ones) can't deny admission upon the basis of race -- nor, in some states, upon sexual preference.
>We constantly place limitations upon the scope and focus of commercial evaluations. Social media is a landscape that will have to be dealt with, in this regard.
Yes but the intention of those laws are to stop irrational bigotry. Like someone who hates some group and refusing to do business with them because they want to punish them or whatever. We are talking about an unbiased computer algorithm that just weighs the data and uses it to make more accurate predictions. That's the goal, to make accurate predictions. The data used doesn't matter.
The article is talking about a private company using publicly available data as a factor in determining whether or not to extend a loan to you. I think it's kind of shitty, but I don't know that it's any different than say using gender as a factor.
http://www.propublica.org/article/disparate-impact-and-fair-...
Honestly, I'm a little confused by some of these equality laws. I'm pretty sure that the law can't compel you to make a loan you don't want to make, whether there is a good reason on not. I think you just can't say the denial was for a racial reason or gender reason or whatever. But even if those things were at the heart of your decision, so long as you don't say it, is that even illegal?
And in this case, I'm talking about private companies who don't have connection to US government. (ie: I think if you're government ensured or whatever, they have more power to compel specific behavior.)
http://www.occ.gov/topics/consumer-protection/fair-lending/i...
Yes, absolutely.
If you want the right to set up a business to serve the people of the nation, the people have decided that you can do so, so long as you serve them without regard to color, gender, etc.
Our forefathers made these laws because they saw that given the opportunity, entities with a profit motive will pursue profit over all else, to the detriment of society as a whole.
It was seen that when discrimination occurs, society as a whole suffers.
I don't want my neighbor to go broke and let his house fall apart because he married a black woman from a hellhole in detroit.
Half of our "forefathers" built fortunes on the backs of slaves. They got plenty of other things right, but many of them missed the mark on racial and gender equality.
In abolishing slavery, lawmakers in 1865 made it clear that regardless of how profitable slavery was for slave-owners, it was bad for mankind and would not be tolerated.
It's now illegal in some nations to discriminate pricing based on gender.
>It makes even less sense if the the insurance company is allowed to consider other factors that are correlated with gender (e.g., age, profession).
Agreed.
It's interesting you've assumed that it's the women who are paying the higher premiums. Contrary to the stereotype about women being bad drivers, it's men who pay the gender premium on car insurance.
Look at it the other way around. By not taking it into account, 100% of men would be suffering because of the 80% of women.
In any case, this isn't any different with all other factors. Age and profession for example. There are really good 16 year old drivers, why should they have to pay higher insurance? By your logic making any predictions is wrong if they aren't 100% accurate. Gender is just a subcase.
Nothing about this damages society or perpetuates class divisions and I haven't the slightest idea where you got that from. We aren't talking about arbitrarily discriminating against a group of people, but charging them slightly more because they cost slightly more. Or less. And for the most part, other factors like past history and the like will vastly outweigh that information, unless you actually believe it makes a difference. In which case why shouldn't it be used?
>Because human lives are more important than maximizing profit.
This is the stupidest expression going around the internet. Obviously human lives are more important than maximizing profit (well not so obviously, as almost everyone risks their own lives and often the lives of others for money and convenience. Driving cars for example.) This adds nothing to the conversation except to make it seem like the other side is against human lives which obviously aren't. No one has ever said "maximizing profit is more important than human lives."
I doubt it, do you have a citation for that?
Um... How does it determine your location? Your IP address? Cause that's really a good indication of where your computer is physically located. Hint, our work traffic is routed through company headquarters halfway across the world before reaching Kreditech's website. Now Kreditech thinks I am lying about where I am located. Great.
The Economist covered it a while back in developing nations - if your credit score suffers because of a friend you can exert social pressure on them to pay back the loan. You don't want to be known as a deadbeat to your friends so you are less likely to take out a loan you can't afford.
Though in that example the social network is an explicit opt-in I believe.
I doubt anyone cares about their credit score for the sake of the official number of their credit score, people care about it because of what it means when you want to buy a house, or take out a loan, or sign a mobile phone contract. If Facebook friends affect these things negatively (or positively), then I don't care whether it's because they change my credit score, or because everyone looks at these things as well as my credit score, either way it has the exact same effect.
Personally, I'd be happiest if I had a credit score of zero or whatever the number indicating non-existence is these days.
Nobody has to trust the popular credit rating agencies, and people are free to make their own ratings/certifications or start their own companies that do so (unless the government prevents that... which if so, is a problem with government not the rating agencies.)
> "One such company, Lenddo, determines if you're friends on Facebook (FB) with someone who was late paying back a loan to Lenddo....
No explanation of the what the mechanism for collecting this is. Likely it's a matter of opting in to share your data through a Facebook app, an act whose culpability lies with the consumer.
> "Lenddo has about 250,000 members, but it only operates in the Philippines, Columbia and Mexico."
Um. Ok. Three sem-developed nations. It's journalistically incompetent not to explain what the relevance of those nations are to the operation of Lenddo, and why any of that is relevant to the American general public.
The only thing I learned from this was that CNN Money articles can be remarkably content-farmy and AOL-like, and HN readers can subdue their analytical spirit when it comes to piling on the criticism of an already-hated company (e.g. Facebook).
What a relief, since I deleted most of my facebook friends and left only two people on it. Although, from what I'm seeing, that could be a plus for some of these lenders!
Unfortunately I expect this to become another "illegal datapoint" that is illegal to take into account. People hate the idea of being judged for seemingly arbitrary things. Which makes sense. But if it actually does correlate with the truth, if it actually makes predictions more accurate on average, why shouldn't it be used?
(This isn't a real issue for me because, like the nouveau cool, I deleted my Facebook.)
Yes, you could argue the person doing the digital ostracizing is a craptastic piece of shit, but the criteria for friendship shouldn't be creditworthiness. If I had to eliminate otherwise good friends (or funny acquaintances) because I know they've had problems paying their bills, I'd not be a happy bunny. It's trite to highlight this, but credit scores impact all kinds of things, from interest rates, availability of financial products, ease of getting a merchant account, and apparently, how easy it is to get certain jobs.
Where does it end? Phone records? Emails? Chat logs? Who you Tweet with most? CCTV hooked up to facial recognition software to figure out who you're going to lunch with?
There's nothing good about this and I hope their business fails.
I don't think in practice many people will change their friends over this, and this is only one piece of information being used, so it probably wouldn't have a huge effect if they did so.
Would it be wrong to judge my creditworthiness by the fact I'm white and gay if you could find some correlation between those traits and bill paying habits? What if white gays were typically irresponsible with money† (because omg shoes) and as a consequence my credit score is forever (or at least initially) tarnished because I'm a white homo, irrespective of my bill-paying ability. I can see many ethical issues with this.
> I don't think in practice many people will change their friends over this, and this is only one piece of information being used, so it probably wouldn't have a huge effect if they did so.
LOL. People will do a lot in the name of money. If Ms. Sally wants a mortgage, like really, really, really bad, Ms. Sally is gonna drop her deadbeat Facebook friends and game the fuck out the system. If she's successful, not only is she more likely to be approved for that mortgage, but she'll get a better rate. I think it's naive to believe that any other behavior is being encouraged by this kind of predictive credit scoring.
When people figure out how to game a system, they tend to do so. Such signals would quickly be rendered useless, unless you could effectively figure out who is gaming the system, and how hard.
†I'm not advocating this idea.
Yes it seems wrong, but why does it matter what the data is if it's being used to make more accurate predictions? That's the goal. The data being used makes no difference. We aren't talking about humans which are irrational and go "omg I hate gay people and want to make them worse off by refusing to do business with them", this is an unbiased computer algorithm looking to predict how likely you are to pay back your loan. If you really are less likely to pay back your loan than so be it. It can just as easily go the other way and judge in your favor. On average you should expect to benefit from such a policy, not lose from it.
>LOL. People will do a lot in the name of money. If Ms. Sally wants a mortgage, like really, really, really bad, Ms. Sally is gonna drop her deadbeat Facebook friends and game the fuck out the system. If she's successful, not only is she more likely to be approved for that mortgage, but she'll get a better rate. I think it's naive to believe that any other behavior is being encouraged by this kind of predictive credit scoring.
It will probably be difficult to game the system (just deleting friends doesn't remove your info and might be a red flag that you are trying to do that.) The benefits are probably small (they are using all sorts of other data on top of it to make predictions about you.) And people don't know what the algorithms are or even what information they are using, which makes it harder to figure out how to game it.
But even if they do so, so what? That's their choice. The models will be readjusted to fit the new data, and the predictions will still be accurate.
Put yourself in the situation that you're punished because of your friends' actions, or the actions of people with the same gender, race, or sexual orientation. You'd feel it's unfair (if you're rational) because it is unfair!
Same thing with the second example. If there was a 99% chance of you becoming addicted to them, then you probably shouldn't be given pain killers. It would be for your own benefit by avoiding addiction. That's not a punishment, that's a good thing.
>Put yourself in the situation that you're punished because of your friends' actions, or the actions of people with the same gender, race, or sexual orientation. You'd feel it's unfair (if you're rational) because it is unfair!
This is the reasoning why people object to it. Humans have evolved a sense of fairness and unjustness that we react to, and usually it's a good thing that keeps society functioning. However it's an emotional response. There is no rational reason that the world would be better if we just gave loans to everyone at the same interest rate, or if we intentionally excluded useful data points from determining the risk of things.
That position is utterly untenable. It's so obviously wrong to imprison someone because some signals indicate they might commit a crime based on who they're friends with on Facebook! There's a difference between being buddies with a gaggle of career criminals and actually committing (or conspiring to commit) a crime!
> If there was a 99% chance of you becoming addicted to them, then you probably shouldn't be given pain killers.
If that person has a history of abusing painkillers, yes. If their friends do? C'mon, you can't possibly justify that position.
> There is no rational reason that the world would be better if we just gave loans to everyone at the same interest rate
I didn't argue for equal interest rates for all. It makes sense for interest rates are tied to risk, but it's only reasonable to make an assessment of risk based on an individual's performance and ability to pay, not their friends' or peers' performance.
> or if we intentionally excluded useful data points from determining the risk of things.
I'm not sure whether you've thought this through. Let's say, for example, it's determined by someone's payment history that they're not good at managing their money. They learn from their mistakes, improve their payment behavior, and subsequently lower their risk of default. On the other hand, what if it was determined that Asians are more likely to default on their debt. What can you do to stop being Asian? What if gay people were less likely to default on their debt and then irresponsible people who happen to be gay find it easier to get debt? Your thesis breaks down very quickly and I truly struggle to believe you agree with the position you're making.
Neither one of us are making novel arguments now, but thanks for the interesting perspective and debate!
I think you are trying to create a straw-man here. Imprisoning people even though they haven't committed a crime is obviously bad, and I completely agree with that. All I'm saying is if we were going to do it, then we might as well try to make the predictions as accurate as possible. If your predictions are more accurate fewer "innocent" people will end up in prison (innocent as in, wouldn't commit a crime if left out of prison.) In your example, less accurate predictions can literally ruin people's lives. Excluding data in that case would be much worse than just for loans.
>> If there was a 99% chance of you becoming addicted to them, then you probably shouldn't be given pain killers.
>If that person has a history of abusing painkillers, yes. If their friends do? C'mon, you can't possibly justify that position.
I don't see why it matters that the data came from who your friends were. It could just as easily come from blood tests or who your parents are, or all sorts of arbitrary things outside of your control. The point is 99% of people with that feature become addicted to the painkillers and it ruined their lives.
If there is a 99% chance of that happening to you, would you take the pain killers? Would you really care where the data came from Would you really ignore information if it was your own life at stake?
>I didn't argue for equal interest rates for all. It makes sense for interest rates are tied to risk, but it's only reasonable to make an assessment of risk based on an individual's performance and ability to pay, not their friends' or peers' performance.
But assessing risk at all puts some people at a disadvantage. It doesn't matter where the data came from, if the predictions aren't 100% accurate then some percent of people are going to wrongly have a higher interest rate, even if they pay back their loan on time.
I think you are thinking of this as an incentive system and not a predicting system. That is it's ok to select for features that people can control, like their past history, but not for things that are outside their control. But the point of interest isn't to reward or punish people for paying or not paying their previous loans back on time. It's just to make up for people that don't pay. The riskier you are, the more it costs to make up for all the other high risk people that didn't pay.
Ideally you just wouldn't give out loans to people who wouldn't pay them back, and would give loans with no interest to people who would. But usually it falls somewhere in between 0 and 100% probability. The goal isn't to reward or punish people, it's to predict as accurately as possible.
Because statistics.
Correlation applies to populations of data points, not individual data points. Even if 99% of the data points have a certain feature (an extremely strong correlation), the 1% of outliers should not be penalized for being similar to the rest of the group in other ways.
To look at it another way, by not taking that data into account, you are making those 500 worse off. I don't see how that is preferable.
If we had a time machine to go into the future and see what loans would be paid back and which ones wouldn't, that would be ideal. But we can only guess. If our guesses aren't 100% accurate, are we saying we shouldn't try at all?
The question we ask is, what is this prediction based on? Some things are sacred; we will not allow predictions to be made based on race or gender, but we will allow predictions to be made based on billing history. The latter is much more within an individual's control than the former!
Why should some predictors should be considered "sacred"? The point is to make the best predictions possible. It doesn't really matter what information is used to determine that.
Even using something objectionable like race as a predictor wouldn't "lead to long-term unrest", just the potential of slightly higher and lower interest rates for different individuals. There is no "reinforcing divisions in society". If anything more accurate predictions benefit society with less risk for investors and lower interest rates for borrowers.
"Borrowers grant Kabbage access to their PayPal, eBay (EBAY, Fortune 500) and other online payment accounts, disclosing real-time sales and delivery information. The company says it can determine a business' creditworthiness and put money into its account in just seven minutes.
Once a small business is getting credit from Kabbage, it also has the option to link up its Facebook and Twitter accounts to the site, which could provide a bump in its "Kabbage score." The small businesses that do are 20% less likely to be delinquent on their loans, Golin said."
The article's real title is a lot better, although still link baity: "Facebook friends could change your credit score"
"Dear insurance companies, I'm shopping for a policy. Please fill out this bid form so I can verify your business history, tax compliance, carbon footprint, employee demographics, political contributions..."