Lenders using social networks to assess applicants?

Could stacking your Twitter or Facebook contacts lists with financially-responsible friends help improve your chances of getting a loan?

The answer could be yes, according to a report out this week from CreditCards.com. In a story entitled, "Social networking: Your key to easy credit?" reporter Erica Sandberg writes that, "In their quest to identify creditworthy customers, some (creditors) are tapping into the information you and your friends reveal in the virtual stratosphere."

The idea here is that banks, credit card companies, mortgage issuers, and other lenders may have stumbled onto what they think is a solid new source of information that can help them determine who makes a good loan risk.

This is highly speculative stuff, of course, but the basic philosophy seems to be that financially sound people tend to cluster around those like them. So if your friends are solid, you must be a good bet.

"(One) reason credit issuers are looking to this data," Sandberg wrote, "is to reduce lending risk. Social graphs (profiles based on individuals' social-networking behavior) allow credit issuers to know if you're connected to a community of great credit customers. Creditors can see if people in your network have accounts with them, and are free to look at how they are handling those accounts. The presumption is that if those in your network are responsible cardholders, there is a better chance you will be, too."

Sandberg goes on to quote Rob Garcia, senior director of product strategy for The Lending Club, a "peer-to-peer lender," who asserted that his company uses applicants' social-networking behavior as an additional barometer for determining lending risk. "We use social chatter as a way to bring risk down," Garcia told CreditCards.com. "It's a wealth of information about a person...When people have large networks, they get funded two to three times faster than without."

In fairness, it seems lenders are not checking the credit ratings of those on your friends lists, nor applying any information found about those people to your credit rating. Sandberg wrote that Joel Jewitt, vice president of business development at Rapleaf, a San Francisco firm that focuses on monitoring social networks, said that lenders are mainly using information gathered from social networks to boost applicants' chances of being approved rather than the reverse.

Still, at this point, privacy bells may be clanging in your head, but to me, this is a natural evolution of social networking. Anyone who spends a significant amount of time on Twitter, Facebook, or other popular social networks, and who doesn't proactively make their information private, is begging for marketers and other big companies to data mine their lives.

And why shouldn't they? If you're going to put all that information about yourself out there in the public eye, haven't you basically signed away your rights to keep it from being used for others' business purposes?

Well, that's probably a conversation for another day, but the reality is that most people who are active social network users have long since given up any semblance of true privacy, and I'm surprised it's taken this long for anyone to notice that people's personal associations would be useful to creditors in determining creditworthiness.

That's not to say, of course, that it's a good thing, or even a proper thing. On the other hand, if you're worried about whether you're going to be approved for a loan, maybe having this knowledge is an opportunity to game the system. You could, for example, guess at the financial health of many of the people in your networks and cull those you suspect of being bad for your lending hopes, while at the same time stacking your friends lists with those you think are rolling in platinum cards and low-interest mortgages.

Cynical? Yes, certainly. But if the banks can play this game, why can't we play right along?