Experian estimates that right now 62 million adults in America don’t have enough of a credit history to generate a credit score—that magical number that banks and landlords use to determine trustworthiness. These people are called “invisible” or “unscoreable” by the banks, and studies show that this state of creditlessness disproportionately applies to communities of color and recent immigrants. Without a credit score, it’s much more difficult to rent or buy a home, start a business, or get a loan.
For banks and lending agencies, this presents both an issue and an opportunity. The more people they can turn from “unbanked” to banked, the more money they can make. Bringing those people into the banking world means not only profiting on the money in their accounts, but also potentially making money on them when they take out loans or mortgages. But without basic information like credit, banks can’t evaluate the risks they might be taking on individuals and businesses.
To bring these “credit invisible” people into the world of lending, banks and credit agencies have started coming up with creative ways of assessing that risk. They’re calling it “alternative data,” which really just means data that isn’t normally used in a credit report. That could be things like proof of rental payments, or mobile phone bill payments, or cable TV payments. Anything people can use to prove that they’ve paid bills on time certainly helps. But it doesn’t stop there. In a report on alternative data, Experian proposed also using things like a person’s educational history, occupation, and even social media activity. “Yelp reviews, Foursquare check-ins and online rankings and ratings can all shed light on a business’s health, growth and stability,” the report explains.
“All data is credit data.”— Rob Aitken
Sociologist Tamara K. Nopper has been looking into the intersection of surveillance and financial freedom when it comes to alternative data. In her work on Korean immigrant entrepreneurship, she has watched recent immigrants navigate banks and systems without credit histories. To her, this idea of “alternative data” isn’t as new as places like Experian might claim. The banks that lent money to the immigrants Nopper studied were always looking for alternative ways to judge someone’s likelihood to pay it back. “The way the bankers would describe their work, they would talk about the alternative forms of data they would use for an immigrant. Things like your rental payment in another country, your work history, that they could verify through a transnational banking institution,” she told me. Now, this practice has a fancy name, and with it comes concerns.
On the one hand, getting access to banking has some serious benefits for people—having a checking account makes everything from getting paid to renting an apartment a little bit easier. Often, the language around alternative data is angelic. Banks are offering the credit-invisible a way to “come out of the shadows” and fully participate in American life. But “coming out of the shadows also means becoming more visible and more trackable,” Nopper says, “so that becomes an interesting question about what banking the unbanked immigrant will mean for issues of surveillance when more and more activities are documented and tracked.”
In a paper on the unbanked, political scientist Rob Aitken argued that “all data is credit data.” He writes, “Experiments in alternative credit scoring are, in some essential measure, attempts to know the unbanked—to know unbanked bodies, payment traces, psychological inclinations, online behaviour, social footprints—and to verify the creditworthiness of those bodies in detailed and intimate ways.” If the end goal is for banks to guess how trustworthy someone is, they can (and might) turn to data beyond bills being paid. Which leads to an interesting question about privacy, and who is afforded it. “If all data is credit data, when does all data end and begin? Does it have a beginning point or is it anything they can find on you?” Nopper asks.
There are laws in place that should, in theory, keep banks from discriminatory lending practices based on the data they collect on people. Experian’s own reporton the future of alternative credit carefully explains that social media accounts for businesses are great sources of this data, but personal accounts should be considered with caution. The Equal Credit Opportunity Act states that credit must be assessed without the consideration of race, religion, gender, marital status, or age. “A quick scan of any Facebook profile can reveal these things and more,” the Experian paper says. But it doesn’t rule out the option completely: “This is not to say that social media data can’t be used in the future, but financial institutions are still grappling with how it can be predictive of credit behavior over time.”
In this future form, then, we imagine a time when credit scores do indeed take into account not just our payment history, but our entire social web. With the aid of algorithms and machine learning—which will surely be couched as a neutral solution to the pesky problem of discrimination outlawed by the Equal Credit Opportunity Act—lenders will be able to mine our every move to generate a credit score that truly sums up how trustworthy we really are. Simply have your social media app generate a special data access code, and voilà, your credit score can be augmented by simply looking at how positive your comments are, how often you “like” posts from high- or low-risk accounts, how quickly you respond to DMs, and even how long you spend mindlessly scrolling. How often do you text your friends back? Did you call your mom on her birthday? Did you like posts about strip clubs or stockbrokers?