Your Browsing History Might Impact Your Credit ScoreBeau Albrecht
New World Order proposals tend to appear feel-good or sensible on the outside, then reveal themselves to be rotten upon closer inspection. The International Monetary Fund’s new big idea about personal credit scores is no exception.
The IMF, of course, is one of those big international institutions that the public didn’t elect yet wields tremendous influence in the world economy. As we were told by my high school civics teacher, the Goddess of the Status Quo, their function is to be an international currency trading house. Cool beans, but it seems that monkeying with personal credit scores exceeds their authority. What’s up with that one?
How credit scores are calculated now
As it goes in the USA, there are three credit bureaus: Experian, TransUnion, and Equifax. These collect data on payment history, as well as a few other metrics. (These items are among what the IMF terms as “hard information.”) The permission to keep dossiers on you is buried into the fine print of the credit agreements that hardly anybody reads. The bureaus all have a long-form report, but also produce a single FICO score that summarizes creditworthiness. 300 is the worst score, and 850 is the best. Bad scores will mean being rejected for loans, or having to pay Shylock interest rates. The exact formula is a trade secret, which seems a bit fishy, but the general details are known.
35% of the score is based on payment history. Being late on bills incurs a penalty, and charged-off accounts are worse. 30% depends on how much you owe; large credit card balances will bring a penalty. (That’s a bad idea in the first place, since you’re forking over high interest rates to the banksters every month.) 15% of the score is length of credit; new accounts bring this down. 10% is about types of credit in use; all credit cards and no installment loans are considered bad. The final 10% of the score is about recent inquiries; consumers get a small hit each time they apply. Other penalties are for collection actions, bankruptcy (the latter lasts ten years), and certain legal actions.
What’s the bad part of the system? The keyfield, of course, is the almighty Social Security Number. It only was supposed to be an identifier for a government retirement program. The politicians swore up and down that it never would be used as a universal identifier, but that’s exactly what happened. Moreover, the Privacy Penetrator Number is required in finance too. Just try getting a loan without one! The alternative is doing without, but most people don’t have enough cash on the barrelhead to buy a decent used car, and only the rich can buy a house without a mortgage. Loans may also be needed for education or to pay off large medical bills.
Other than that, late payments on regular consumer debt will haunt someone for up to seven years. These reports often are used in pre-employment screenings. So someone who desperately needs a job to pay late bills might not be able to get hired because of late bills. Effectively, this kicks people when they’re down. Also, those who don’t have any credit activity at all within the last seven years will have very low scores and will get stuck with Shylock interest rates until they can establish a good payment history.
Still, there are some good parts to the system. Once a year, someone can obtain a free report from each of the bureaus. Inaccurate information can be disputed. Also, this covers a limited selection of personal information — the items mentioned above. Financial institutions worried about getting sued for “racism” even can opt to leave out the names and addresses of applicants, lest they be accused of bias against people with highly creative monikers or who live in bad neighborhoods.
It’s very objective that way. In principle, even social class isn’t a barrier to a good rating, so long as payments are made regularly and one isn’t up to one’s nostrils in debt. Doctors, engineers, and archbishops will all get good credit scores if they pay their bills on time and live within their means. So will street sweepers, undocumented pharmacists, and ex-convicts, as long as they’re financially prudent. Ideology, religion, opinions, hobbies, and so forth don’t figure into it for better or worse. The data collection system simply doesn’t track these things. A women’s studies professor, a Boogaloo Battalion officer, a genderfractal transunicorn, and a Scientologist e-meter repairman will all get good scores if they pay their loans on time.
What the IMF wants to use for credit ratings
The blog post advocating new criteria appears in “What is Really New in Fintech.” (It’s based on an earlier IMF working paper which tends to be pretty dry, as such things usually are.) This modest proposal promises big changes:
Traditional banks face competition from online start-ups with no physical branches. Social media and other digital platforms are expanding into payments and credit. The increase in demand for digital services triggered by COVID-19 is turbo-charging this transformation.
Well, now, where have we heard this sort of thing before? Then it offers a solution to the aforementioned problem of finding it difficult to get credit if one doesn’t have any.
Fintech resolves the dilemma by tapping various nonfinancial data: the type of browser and hardware used to access the internet, the history of online searches and purchases. Recent research documents that, once powered by artificial intelligence and machine learning, these alternative data sources are often superior than traditional credit assessment methods, and can advance financial inclusion, by, for example, enabling more credit to informal workers and households and firms in rural areas.
Of course, there are certain risks and challenges. One of these is the following:
Other critical areas include competition policy, to address the monopolistic tendencies of large digital platforms, related to network effects and the natural tendency to converge to a few large platforms; and data policies to ensure consumer privacy and efficient and safe collection, processing, and exchange of data.
Oh, really? That’s about as far as it goes with that one. Then it wraps up with this:
Governments should follow and carefully support the technological transition in finance. It is important to adjust policies accordingly and stay ahead of the curve.
It looks like this is a clear recommendation then. One of the notable things about outfits like the IMF is that they can advise governments to do this or that, and politicians pay attention. It must be nice!
What’s in the working paper?
Here we have a few more hints as to how this plan might be carried out:
The use of non-financial data will have large effects on the provision of financial services. Traditionally, banks rely on the analysis of customer financial information from payment flows and accounting records. The rise of the internet permits the use of new types of nonfinancial customer data, such as browsing histories and online shopping behavior of individuals, or customer ratings for online vendors.
The literature suggests that such non-financial data are valuable for financial decision making. Berg et al. (2019) show that easy-to-collect information such as the so-called “digital footprint” (email provider, mobile carrier, operating system, etc.) performs as well as traditional credit scores in assessing borrower risk. Moreover, there are complementarities between financial and non-financial data: combining credit scores and digital footprint further improves loan default predictions. Accordingly, the incorporation of non-financial data can lead to significant efficiency gains in financial intermediation.
The last item suggests that ideally, one’s online “digital footprint” should supplement the “hard information” standards for creditworthiness. Still, I’m afraid that we’ve just begun to scratch the surface:
Large technology firms collect vast amounts of non-financial data through their consumer-facing platforms in the areas of e-commerce, social networking, and online search. The sheer amount of data enables the use of “big data” analysis tools such as artificial intelligence and machine learning.
I can’t wait for Skynet to become self-aware. Much further discussion follows about the decline of traditional banking and the possibilities for future conglomerations. For example:
The recently announced partnerships between Apple and Goldman Sachs as well as Google and Citigroup are consistent with this view, and most likely only mark the beginning of Bigtech platform involvement in financial services provision. [. . .] Not providing financial services directly also allows platforms to avoid compliance costs, and, especially in the case of Bigtech firms, political resistance.
What possibly could go wrong?
The details are remarkably nebulous still. It says nothing further about what will be deemed good or bad for someone’s new, improved credit score. It does state that details will have to be hashed out still. Let’s take a crack at it and see how this might go. The “digital footprint” data listed as possible fair game to be scanned and analyzed for creditworthiness include these above-mentioned items in order of appearance:
- The type of browser
- Hardware used to access the internet
- History of online searches
- Browsing history
- Customer ratings for online vendors
- Email provider
- Mobile carrier
- Operating system
- Social networking
So if someone uses Brave or Tor (you rebel!) instead of Chrome, is that person’s credit rating penalized? Is a bugman who always buys the latest gadgets advantaged, and someone who keeps the ‘486 well-oiled disadvantaged? Are Windows 10 users better credit risks than Fedora users? Which cell phone providers give good credit ratings and which do not? Which email providers will incur a penalty? There are no answers given so far, but these criteria count in the proposed system. How is this stuff supposed to matter, anyway? Despite a couple of nods in passing to privacy concerns, even these technological details have crossed the line.
The invasion of privacy goes much further than that. Purchases will be a criterion too. One may surmise that lots of online purchases are good, and in the “New Normal,” this will disadvantage those who prefer to buy most things at stores. Will buying any particular types of goods and services incur penalties? Does leaving bad reviews cause someone to incur a bad credit rating? Are any of these things going to be disclosed? Again, we’re left to wonder.
Even that was merely the beginning. What web searches are not OK, in the opinion of whoever implements this? What happens if you go further and click the link to a site the programmers don’t like? What topics on social media will be penalized? All that’s going to be up to the artificial intelligence and machine learning the IMF’s working paper was discussing, and of course the criteria the programmers load into it. If the precise formula for FICO scores being a trade secret seems a little fishy, then the IMF plan’s vague details smell like a cask of Roman fishpickle bottled when Hadrian’s Wall was new.
Now I get political (you knew I would)
The IMF’s previously mentioned writings don’t make any particular statements about it, but this easily could be used as a system to enforce ideological control. Note well, these technologies — artificial intelligence and machine learning — are incorporated into the programs that Big Tech uses to identify thoughtcrime in posts and videos. What are the chances that people will be denied financial services for political reasons?
The precedents are already there. Online payment processors are notorious for this, and even a few traditional banks started doing this too. (Some of these payment platforms refuse to return money to customers who are treated this way, which is theft.) Often this will happen in quick succession, in conjunction with social media banning. Since that qualifies as an organized boycott, it’s illegal under the Sherman Antitrust Act. Simply put, Big Tech can’t be trusted to assign our credit scores or otherwise interfere in the public’s finances.
All told, converging banking functions with Big Tech isn’t so wonderful after all. The further possibilities are worse than that. Since more online shopping and the “cashless society” are big agendas being pushed in the Great Reset package, this is likely to make it further difficult for people to buy basic necessities if they’ve been caught browsing the “wrong” websites or whatever. One final question: will it be possible to opt out of such a system, or will refusal to accept the terms make it impossible to buy anything, just as one can’t get a loan without handing over one’s Soviet Security Number?
Whatever intentions the IMF has or doesn’t have, this proposal means a massive invasion of privacy. Worse, it has the potential to be just as bad as the Chinese “social credit” system rightly regarded as a police state measure. We need to call attention to this and expose it before it gets started.
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