By Ray Birch
GAINESVILLE, Fla.—Borrowers’ credit scores may someday be impacted by their Internet browsing history.
New research posted to the International Monetary Fund’s (IMF) website suggests lenders may look at where people are going on the web to better determine if the individual is a good credit risk.
Bill Hardekopf of CardRates.com told CUToday.info he is not surprised by the possibility.
“Your digital footprint could be used to come up with a final credit score,” said Hardekopf. “But I have to say, this is a little bit scary. It makes me want to go back and read George Orwell’s 1984 again.”
Nevertheless, to think this kind of data won’t someday be leveraged by lenders is “fooling yourself,” Hardekopf said.
“Right now advertisers are using your digital footprint—what you search for, shop for—to send you ads for products. We’ve seen this going on for several years now. It’s called retargeting. You search for flea medicine for your dog and the next time you are on a website you see ads for flea medicine.”
Delving Into Search Histories
That same strategy—advertisers using your web history to get to know you better—can and will likely be adopted by lenders, said Hardekopf.
“They will evaluate your online habits to help them better determine the risk you present to them, in addition to using traditional scoring methods,” said Hardekopf. “They may likely say that people who generally look for this on the web are better risks, and people who search for that tend to present a higher risk for default.”
The ultimate determination of creditworthiness, said Hardekopf, will certainly be left up to artificial intelligence and new algorithms.
Hardekopf pointed out lenders are already turning to alternative credit scores, such as those that count rent and utility payments, to evaluate borrowers.
Bill Hardekopf
How all this might finally work is still undetermined, stated Hardekopf, adding what could occur are large Internet companies like Google selling off their browsing data.
“Google is in the business of making money. I could see them selling that data off to the credit bureaus,” Hardekopf said, reminding that issues around privacy will certainly be in play.
One Potential Positive
While an invasion of privacy is a negative implication, there is also an upside, according to Hardekopf, observing that the new approach to risk assessment could help some borrowers with thin credit histories get a loan.
“As we know, borrowers that have little or no credit receive the highest rates,” said Hardekopf. “This could help lower rates for these individuals. This could help the underbanked.”
Yahoo Finance, citing the IMF report, also said there is an “efficiency-privacy trade-off.”
“The increasing use of private data for financial services also raises a myriad of consumer protection and privacy issues that require the government to set standards for data collection and use,” the working paper says.
Hardekopf agreed this use of personal browsing data “somewhat crosses the (privacy) line.”
“But this data is being used in other industries, and I can see people trying to make money by selling this information,” said Hardekopf. “And I can see credit bureaus saying this might help refine our risk assessments on particular people.”
Yahoo Finance pointed out that what the working paper suggests could happen is still “speculative.”
“The paper points to fair lending rules in the U.S. that prohibit using gender or race information for lending decisions. So, how much of your digital footprint is fair game when it comes to evaluating what kind of borrower you’ll be? And how will your information be kept safe from data breaches? The researchers say new regulations will need to be set by governments so that Big Tech faces the same data privacy requirements as banks do. Big Tech innovations move at such a fast pace, it may take a while for governments to catch up with the necessary policy,” Yahoo Finance reported.
No ‘Dedicated Spy’
Putting all of this into motion is the working paper from IMF researchers that suggests a person’s browsing history could indicate to financial institutions just what level of risk a potential borrower represents, even if the person’s traditional credit score has taken some dings. The paper further cites separate studies that have shown combining credit information and a person’s digital footprint “improves loan default predictions.”
“That doesn't mean you'd have a dedicated spy watching your every click. Instead, artificial intelligence and machine learning would be needed to scrape this data and convert it into useful information in a credit report,” stated Yahoo Finance in its analysis.