How Accepting A Friend Request Will Soon Alter Your Credit Score

 Joe Polverari is the General Manager of Yodlee Interactive, a provider of financial applications that aims to make online banking more profitable.

Are you only as good as the company you keep? Before you accept that next friend request, consider what that person says about you, what that association might eventually cost, or be worth – even in the financial sense.

Friends-texting

Where you live, who you friend on Facebook, the frequency you shop at Trader Joe’s, how much you spend – all of this information will be picked up, shared, and analyzed amongst the various connected devices and services you use. We are rapidly reaching a point when technology services (a.k.a. machines and software), will have access to all of this data based on your everyday routine and will, among other things, act as your most trusted financial advisor.

Intuitively, most of the above examples would seem completely unrelated to your finances — but what’s a better indicator of your financial status: 1) paying 20 percent of your credit card off every month, 2) how much you spend on rent, 3) the financial status of your closest friends and family, or 4) the average cost of your meal out? All of these examples can signal the type of spending and financial patterns you are to likely follow.

Here are a few emerging trends that will lead to very personalized, machine-based financial advice:

1. Your devices know more about you than you think

You’ve probably heard about the Internet of Things, in which your everyday items like cars and light switches will be communicating with the web. Soon, your devices will also be communicating, device to device, using their own stores of data to work in concert and create better, more useful sets of data.

Think of it like the Cloud of Things. Everything from phones, cars, thermostats, refrigerators and watches, will act like mini-servers communicating with each other about your behavior and usage patterns. Soon your car might notify your oven to start preheating because you’re only twenty minutes from home and it knows based on your emails with your spouse that you’re planning to cook lasagna that night.

2. How the digital “you” is growing

As these devices interact, a pool of very useful, very personal data will accumulate, and can be used to help you make more informed, even very complex, decisions. This technological shift towards the Cloud of Things will see an exponential increase in amount of data produced and analyzed.

This wealth of data will also be applicable to your financial decisions. “Who you are” as a consumer will no longer be based solely on your purchases, investments or credit file, but will also consider your daily routines, such as browsing the Internet, where you shop, and more.

Consider Coin, which is a single, swipe-able card that holds all your credit, debit, and rewards cards, so that you can manage them all with one device. You can easily imagine that using something like Coin would quickly build up enough data intelligence to pick your cards for you, depending on the type of purchase, maximizing your rewards and minimizing your fees. Together, data and devices have the power to revolutionize the financial industry.

Information around your broader social life and risk tolerance will also provide better insights for financial advisors to help with loans, savings and improving your credit. It will offer you greater financial security and value creation over the long term. It’s happening already.

Companies like FeeX use the power of crowd sourced information and trends, combined with vast amounts of relevant personal data to personalize and maximize your retirement investment decisions, potentially saving tens of thousands of dollars you would ordinarily pay in fees to banks and mutual fund providers.

3. A Pandora for human finances

Information you can leverage won’t just revolve around you, but also around those you associate with — even indirectly. The general lifestyle choices of people similar to you, driven by everyday information, like where you live, the restaurants you frequent, and the items you purchase, will also help derive more enlightened financial recommendations.

Consider how Pandora mapped music: music was labeled, then connected, trends developed, improving the algorithm, and eventually defining “if you like that, you’ll probably like this.” Soon something similar will happen for you with your finances: advisors will make better recommendations based upon other people who are similar to your digital self and based on how their financial decisions have panned out.

Armed with a wealth of your own data, and aggregate data from other people like you, you will be able to better define and personalize things like the best health care option, savings or investment strategy, for you with an efficiency and effectiveness never before possible.

Equally useful, but so far under discovered, silos of data about you are available to insurance companies, the government and credit bureaus and should be made more readily available to the most important person — you.

Consider your credit score, in particular, which is calculated based on antiquated and often inaccurate information. Most consumers in fact know very little about their credit score, how it’s aggregated and what it really says about them. Worse, consumers have little to no input in the actual data that fills out their credit profile; rather, that data is reported by other entities, often incorrectly.

Technology and new services are now making it possible to incorporate entirely new, more relevant data into a credit profile — data that is mostly consumer controlled or contributed and generated by simply gathering and delivering your lifestyle data. Data that should provide better indicators of your financial success as a borrower.

Over the long term, aggregating personal data is a macro-trend that will save people time, money and help them make smarter, more personalized decisions. Ultimately, it will make the markets for the products – especially financial products and the way they are scored, priced and sold – more efficient and responsive to your needs.

The opportunity to access, incorporate, and innovate with data is exciting. Imagine being able to foresee the financial benefits of being an active participant on LinkedIn, or how purchasing groceries via delivery will decrease your likelihood for stress disorders. They say how you handle your money says a lot about you — soon you’ll know what that really means.

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