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Can Your Smartphone Wreck Your Credit Score?

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Credit scores have traditionally been based on past data: Lenders analyze a borrower’s payment history, her amount of debt and credit age in order to determine how likely she is to pay back her debt. But as society becomes more data-driven, could lenders start turning to smartphones to measure our creditworthiness?

In developing parts of the world, a few already are. Several Silicon Valley startups have launched mobile apps that use data culled from smartphones to underwrite and make micro-loans to users in countries such as Kenya and Tanzania, The Wall Street Journal reports. Here’s a look at how the new technology works and what it might mean for your credit score.

How the Apps Work

By downloading these apps onto smartphones, users grant micro-lenders access to any information, including texts, emails, time and duration of calls and payment records. Underwriting algorithms have begun to recognize that infrequent travel, fast-draining batteries and sending more texts than one receives are red flags, while evening phone calls, which show price sensitivity as they’re cheaper, receiving more texts and gambling—yes, gambling—are signs you’re reliable, WSJ says.

By analyzing these and other factors, lenders can deliver immediate approval and financing to customers. For instance, on the startup Inventure’s website, it says most of its small-dollar loans can reach borrowers across Africa in less than five minutes.

Are They Coming to a Phone Near You?

Using smartphone data in underwriting may work in emerging markets, such as South Africa or Nigeria, where banks (and financing) can be scarce. But the startups WSJ spoke with didn’t mention any plans to bring their tech to the U.S. And if they were to try, widespread adoption may prove difficult. Financing is easy to get in the States, so that could potentially negate the privacy tradeoff consumers would have to make to access a loan. Plus, financial institutions using this type of technology would need to be careful not to run afoul of fair lending laws.

That’s not to say the types of social data found on a smartphone won’t affect your ability to score a loan. Some alternative lending startups in the U.S. scan social media accounts as part of their loan decision process. And recently an executive at the credit scoring giant FICO suggested that Facebook profiles could have some worth in determining a person’s ability to repay. (FICO did clarify that timeline updates aren’t used to calculate credit scores.)

Even if social media can’t hurt your credit, other data has already made its way onto certain reports. Specialty renters’ reports, for instance, consider a tenant’s history, while credit scores designed to help the underbanked examine deeper credit card transaction data, among other things, to help those outside the traditional credit scoring system.

As such, consumers should think twice before posting on social media or other outlets. And no matter what data is in use, it’s important to keep an eye on your credit. You can pull your credit reports for free each year at AnnualCreditReport.com and see your credit scores for free each month on Credit.com. Scanning these reports for errors can be a great way to keep scores intact and prevent identity theft.

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  • Sharkey

    That’s BS that credit bureaus are using everything they can to handcuff consumers and deflate credit scores. You aren’t a person that’s judged on character despite a few mishaps that may occur in life. You’re nothing but a number that if it’s not 700 or more, you are left in the cold trying to get anything on credit or if you do, you have to pay ridiculous rates.

    • RickardOGrady

      You have to realize the more they can futz with your score, the more the financial sector can bend you over the barrel and do things on command. So yeah, they’re going to take every opportunity they can to get you greased up.

  • iwanttovoteforobama

    If this is how they will gauge your credit worthiness, I could care less about using them. This is just hype. Usual online social interaction assumptions for generating a FICO score is just BS. Not going to happen. I can be sure of that.

    FICO is under pressure to compete.

  • Malissa S Colangelo-Garcia

    I totally agree with Sharkey! Credit scores are a bunch of BS totally anyway!

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