Will Your Online Browsing History Soon Impact Your Credit Score?

Browsing the internet for the latest and greatest buys seems like a harmless enough activity – until it isn’t.

Your browsing, search, and purchase history could soon be regarded as a source of data that lenders look to when determining how much credit you’re eligible for and the accompanying interest rate.

According to a working paper produced by International Monetary Fund (IMF) researchers, combining your digital footprint and your credit score “further improves loan default predictions.”  If you’re wondering how this data would be collected, look no further than artificial intelligence (AI) and machine learning.

Theoretically, a lender could see a credit report that uses an algorithm to show a mix of your online shopping and browsing habits along with more traditional financial data such as your payment history and income. Findings from a 2018 study conducted by the Frankfurt School of Finance & Management concluded that “…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.”

Advantages

Using browsing information to determine lending practices sounds a bit, well, sci-fi, but according to the IMF there may actually be some advantages to this practice. Researchers believe that this approach to lending might actually help individuals who have been denied credit by traditional financial institutions.

The COVID-19 pandemic provides some insight into how using browsing history can be beneficial. Although mortgage rates kept going lower and lower during the pandemic, lenders became choosier when it came to approving applicants for those record-low rates. But instead of looking only at whether you were late on one loan payment during an economic recession, your browsing and purchase history could indicate to banks that you’re trustworthy even if your traditional credit score has taken a few hits.

According to the Frankfurt study, “[findings] provide suggestive evidence that digital footprints can have the potential to boost financial inclusion for the two billion adults worldwide that lack access to credit.”

Disadvantages

Although changes to your credit score based upon your browsing history are speculative at this point in time, it’s worth looking at possible privacy and security concerns. The IMF research indicates the possibility of an “…efficiency-privacy trade-off. 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.”

Something else to consider:  Fair lending rules in the U.S. prohibit using gender or race information for lending decisions, which brings into question just how much of your digital footprint is acceptable when it comes to evaluating your borrowing capability. To safeguard privacy and keep your browsing information safe from data breaches, governments will need to institute new regulations so that Big Tech adheres to the same privacy requirements as banks do.