In the not-too-distant future, your internet habits could help determine how much house you can buy and the rate on your next auto loan.
Sounds ridiculous? Right now, your credit score — that three-digit number that tells lenders how responsible you are — is based on simple financial information, like your payment history and debt level.
But research posted to the International Monetary Fund (IMF) website suggests companies will soon be looking at a lot more data to get an accurate picture of the risk you pose as a borrower.
Here’s what the future of lending might hold and how to get the best rates on loans in the meantime.
Lenders could soon use data from your browsing, search and shopping history to create a more accurate credit score, researchers say.
Much of that information is publicly accessible, while some might need to be provided to credit bureaus. Taken together, that data forms your “digital footprint.”
The working paper cites other studies showing that combining credit information and your 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.
While some people may balk at the idea of lenders having access to their personal browsing data, researchers believe this approach could help borrowers who’ve been denied by traditional financial institutions.
The end result would be some “unscorable customers” gaining access to credit, while customers with a low-to-medium credit score “can either gain or lose access to credit,” says an earlier 2018 study from the Frankfurt School of Finance & Management.
Take the pandemic: Though mortgage rates have fallen to historic lows, lenders became much pickier when doling out the best deals.
Instead of focusing on whether you were late on one loan payment, your purchase and browsing history could tell banks you’re trustworthy even if your traditional credit score has taken some dings.
Many are fearful that the U.S. may follow the lead of the tyrannical Australian government, and implement a “social credit system.”