There’s a bit of conventional wisdom floating around that each of us is the average of his five closest friends. The point, I suppose, is that we are influenced by those we spend time with. Either that, or we choose to associate with those most like us. Either way, we are judged by the company we keep, and that is not an altogether unfair way of judging.
Taking this to the extreme, Facebook has announced it has created a new credit scoring model based on friends.
From The Consumerist:
“When an individual applies for a loan, the lender examines the credit ratings of members of the individual’s social network who are connected to the individual through authorized nodes (connections),” the patent states. “If the average credit rating of these members is at least a minimum credit score, the lender continues to process the loan application. Otherwise, the loan application is rejected.”
According to the patent, the lender would be able to access a potential borrower’s social circle by submitting a request for information from Facebook’s databases. They would then receive a series of lists – grey, black and white – that would be used to determine the average credit score for the would-be borrower’s friends.
The article brings up another recently developed scoring model that took into account rent and utility payment histories. They rightly point out that rent, electricity and water are the last things people will stop paying, so the model has the effect of opening up credit to people who have stopped paying their credit cards or car loans, but haven’t had the lights turned off at their apartments yet. Should these people really be applying for new credit? Probably not.
I’m not sure what Facebook’s scoring model is supposed to accomplish, other than people defriending the deadbeats in their social circles en masse. Or maybe people who are believed to have good credit (like me!) will be inundated with friend requests by people looking to boost their credit scores. Realistically, Facebook’s scores will probably track pretty closely to FICO’s scores, so the benefit to Facebook is that people will be able to apply for loans through Facebook, thus opening up a new line of business for Facebook.
The underlying motive seems clear: expand lending to as many people as possible. If you need a loan, now is a good time to be a borrower. Don’t take out a loan just to take out a loan, but if you are going to need a new house, car, or business in the near future, now is the time. Rates are low and standards are loose. Be savvy and prosper.