01-28-2021, 12:59 PM
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#22434 (permalink)
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Epiphany is upon us
Join Date: Oct 2016
Location: Milky Way Galaxy
Posts: 10,012
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Experts predict that in the not-too-distant future, your internet habits could affect your credit score and help lenders determine what they offer you.
We will let you in on what we know so far about how your online activity could be used to determine how much credit you can get and at what interest rate.
There are a few ways to boost your credit score while we all wait to see what the future of lending holds.
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Lenders could soon be using data from your browsing, search and purchase history — your “digital footprint” — to create a more accurate credit score, according to International Monetary Fund (IMF) researchers.
The working paper shows that combining your credit score and your digital footprint “further improves loan default predictions.”
And how exactly would this data be collected and used as part of your credit report? Survey says: Artificial intelligence (AI) and machine learning.
The IMF isn’t the only group to ponder such futuristic notions.
A 2018 study from the Frankfurt School of Finance & Management also looked at lenders using your personal online data in tandem with traditional data from credit bureaus. So, what does your online behavior really say about you?
Their findings showed “the digital footprint allows some unscorable customers to gain access to credit while customers with a low-to-medium credit score can either gain or lose access to credit depending on their digital footprint.”
In theory, a lender would be able to see a credit report that uses an algorithm to show a mix of your online shopping and browsing habits as well as the traditional financial data like your income and payment history.
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Is this good news for consumers?
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While some people may balk at the idea of lenders having access to their personal browsing data, the IMF research points to some advantages to consider. The researchers believe this approach will help borrowers who’ve been denied by traditional financial institutions, especially during tough times.
Take the COVID-19 pandemic: Though mortgage rates kept hitting new lows, lenders became much pickier when doling out those record-low rates. Instead of focusing on whether you were late on one loan payment during a recession, your purchase and browsing history could tell banks you're trustworthy even if your traditional credit score has taken some dings.
These changes to how credit scores are calculated could be very helpful if you have had trouble getting approved for credit in the past. The Frankfurt study notes that their findings “provide suggestive evidence that digital footprints can have the potential to boost financial inclusion for the two billion adults worldwide that lack access to credit.”
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What are the risks?
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Before you start giving yourself a digital makeover, like filling out your LinkedIn profile to show your professional or academic accomplishments, keep in mind these changes to how your credit score is calculated are still speculative at this point.
Your Orwellian objections may have some merit. What about privacy and security concerns? The IMF research acknowledges there would be 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.
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. When it comes to regulation, it is a slow-moving process.
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source, full read:
https://finance.yahoo.com/news/credi...183000645.html
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