An article in the June 1st edition of Business Week titled “What’s a Friend Worth?” provides insight into behind-the-scenes research going on within the largest social networking sites on the web. The goal of the research is to get as many people as possible to click on ads that show up on a webpage. The basic premise of this particular set of studies is that people with similar interests or bonds, (Friends on Facebook, Colleagues on LinkedIn, Followers on Tumbler/Twitter/Blogger) will click on similar ads. So if I click that ad for laser hair removal, my friends and colleagues are (more) likely to click on that ad as well. Seems like a solid premise.

A research firm called Rapleaf took the concept a step further, and found that “borrowers are a better bet if their friends have higher credit ratings. This might mean that a home buyer with a middling credit risk score of 550 should be treated as closer to 600 if most of his or her friends are in that range”.

An implication of these findings is that a home buyer with a credit score of 550 should be treated as closer to 500 if most of their friends are in that range. This is a scary thought. What if most of your friends are 550, just like you, but one happens to have declared bankruptcy? What if you happen to be friends with that person and their spouse? Depending on how the algorithms work, those two people could mean the difference between you getting the loan or not. Just as bad, you could get the loan, but end up paying a higher interest rate than you should.

If this concept were even remotely true, wouldn’t banks already be asking for credit information from friends and family when someone applied for a loan? What makes a friend on Facebook so much different than a friend in real life, in that their credit score could decide the fate of your loan? The only difference is the potential for lenders to have access to the information without disclosing it to the person applying for the loan.

It reminds me of stories about people who ended up on the no-fly list. No one in the government could tell them why they were on it, and no one could tell them how to get off it.

At any rate, if you plan on looking for a loan in the near future, make sure you get a credit score before accepting any new friend requests, and don’t follow the postings of any financially unstable bloggers. In addition, if your credit score is north of 700, please invite me to be a connection on LinkedIn.
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Joe Payne

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