Your credit score of the future could be based upon your web history. According to researchers at the International Monetary Fund (IMF), lenders may soon be able to pull data from your browsing, search and purchase history.
This undertaking would be done with the aim of creating a more detailed credit score.
Research done by the IMF demonstrates that when lenders incorporate both your credit score and “digital footprint” — your browsing, search and purchase history — that it “further improves loan default predictions.”
The IMF isn’t the only group to come to such a vaguely dystopian but unsurprising conclusion. The Frankfurt School of Finance & Management conducted a similar study in 2018.
That research 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.”
Now, there are some clear disadvantages to allowing your digital footprint to be semi-public in this fashion, but there are also a couple of advantages.
One recent example of an advantage comes courtesy of the COVID-19 pandemic. Mortgage rates keep hitting record lows.
This, has in turn, caused some lenders to become much, much more selective about who can get record low loan rates.
Many perhaps have missed a credit card or a loan payment during the lockdowns, which then lowers what is the traditional credit score.
Under this proposed new, comprehensive credit score, lenders would be able to look at your browsing and purchase history to gauge your trustworthiness, even if your credit score is no longer perfect.
An Internet based, more comprehensive credit check could also help people that have had trouble getting credit in the past.
According to the Frankfurt study, there is “suggestive evidence that digital footprints can have the potential to boost financial inclusion for the two billion adults worldwide that lack access to credit.”
Now there are certainly drawbacks to this proposed credit score based on your web history, the biggest drawbacks being privacy and security.
The IMF acknowledges them in their study saying, “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 IMF study later refers to this as an “efficiency-privacy trade-off.”
Then there are the fair lending rules that exist in the United States. The fair lending rules state that lenders may not use gender or race when deciding whether or not to finance a borrower.
It seems very likely that a lender would be able to determine a person’s race or gender once they have access to your digital footprint. That in turn could become a huge obstacle to clear, even for those in favor of the new, comprehensive credit score.