Getting a loan approved has become a tedious process at present as lenders have started adhering to strict rules and regulations. Lenders scrutinise an applicant's complete financial and personal profile to decide whether to approve a loan and at what interest rate. If you have never taken a loan and don’t have a credit profile, banks may ask for extra paperwork. If your credit score is low, a bank of your choice may not lend to you. A credit score is a figure that indicates the borrower’s capacity and intention to make repayments. It includes quantification of multiple factors such as history of default, current debt amount, number of loans, etc. basis which lenders determine a borrower's intent to repay the loan amount. In a nutshell, applicant’s credit score ascertains his ‘creditworthiness', giving lenders a measurement of their credit risk. Since, credit scores give a clear picture of how likely borrowers are to pay back the debt they owe, it becomes a critical tool of evaluation for lenders.
While there are traditional lenders who rely heavily upon factors like repayment history, number of loans, percentage of unsecured credit in total loans and number of delays and delinquencies to determine the credit score, there are also new-age lenders (peer-to-peer platforms) who are mining into borrower’s social media pages to determine their creditworthiness. When a borrower applies for a loan, the lender examines profile of friends on that individual's social network. When a lender requests access to borrower’s social media account, it analyses variety of factors such as who is the borrower associated with, reputation and nature of his contacts, etc. As part of the assessment, lenders also scan the content available on applicant's social media page along with the quality of content uploaded by him. Based on the numbers of factors, the lender comes up with a social media score and then decides on an individual’s application. Low scores can also lead to rejection of loans. Credit risks and frauds are increasing day by day and there have been several cases of fraudulent loan applications detected by lending companies primarily by accessing their Facebook and LinkedIn profiles. Social media components are making the credit evaluation process seamless in a big way for lenders. Indian financial lenders and institutions need to tap the advantages of digital transformation by making their presence felt on social media and start engaging customers. No wonder, Facebook has filed a patent to allow lenders to acquire a direct access to a loan applicant's friend list and make their way into his credit approval process. Although, the social networking platform has attained exclusive rights to use this specific technology in the US, India might be on the list of its countries in the near future. The writer is co-founder and CEO, Lendingkart