How Social Media Profiling Enhances Credit Risk Management

Traditional credit scoring relies heavily on financial history—but what happens when a borrower has none? 

With nearly 1.7 billion adults worldwide remaining unbanked, lenders face a growing challenge: assessing creditworthiness without conventional data points.

This is where social media profiling comes in. 

By analyzing a borrower's digital footprint—social media activity, online interactions, and shared data—lenders can gain deeper insights into financial behavior, risk level, and even fraud potential.

But how exactly does it work? And what are the key benefits for risk managers? 

In this article, we’ll explore the role of social media in modern credit scoring, its advantages, and best practices for effective implementation.

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How social media profile search improves credit assessments

Social media digital credit scoring evaluates a borrower's creditworthiness by analyzing their activity on social networks.

Social media profiles serve as a data source about applicants. This is due to the large number of users on such online platforms worldwide. 

According to Statista, their number currently exceeds 5 billion, and by 2028, it is projected to reach 6 billion.

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Use of social media activity for credit assessment

Analysis of social media activity 

Creditors should pay attention to users' engagement on social platforms, the consistency of their actions, and their levels of activity.

This helps assess the reliability of applicants and determine the specifics of their financial behavior.

Social profile examination

The average borrower has accounts on various types of platforms, providing access to diverse data sources.

For example, entertainment platforms like Facebook or Instagram reveal a person’s lifestyle. Messaging apps help track communication patterns, while LinkedIn provides insights into career and education.

These combined datasets help form a comprehensive understanding of a consumer’s stability and financial habits.

Analysis of other digital footprints

Examining social media is not the only way to assess a person’s creditworthiness. Other digital footprints are also important.

These include online transactions, e-commerce activities, search history, and other relevant data.

When combined with social account search, such information can help create a detailed financial profile of a potential borrower.

Combining alternative and traditional data

Social media data and other digital footprints are often used to supplement traditional financial information.

This allows creditors to make well-informed decisions based on a broad spectrum of data.

Analysis of “friends” and followers

Some scoring models go beyond analyzing an applicant’s social profile. They also take into account the creditworthiness of the people they interact with online.

This can serve as an indirect indicator of a person’s solvency.

Utilizing all aspects of social media profiling ensures a well-rounded assessment of borrowers, makes credit-invisible clients visible, and enhances the effectiveness of credit scoring.

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Four main benefits of social media profiling for risk managers

Lenders who evaluate creditworthiness using digital footprints, including social media data, can benefit in several ways.

#1. Reaching thin-file or unbanked consumers

There are many regions worldwide where people lack sufficient access to banking services. This primarily applies to developing markets.

For example, in Nigeria, Mexico, and several other countries, the share of the unbanked population is 60% or more:

In addition to people who do not use financial services, other categories of the population are also unable to obtain loans from traditional banks. For example, applicants without official employment or immigrants who have not yet established a local credit history.

Social media profiling allows lending organizations to extend their services to all the above-mentioned individuals. This is possible due to the wide range of data made available through digital footprint analysis.

#2. Supplementing traditional scoring

A lender can significantly enhance the efficiency of their scoring model by enriching it with data from alternative sources.

RiskSeal’s studies prove that the comprehensive use of both traditional and alternative data delivers the best results:

This chart shows that relying solely on traditional data is not sufficiently effective. The objectivity of alternative data is slightly higher. However, only their combination can lead to the most accurate assessment of potential risks.

#3. Real-time insights

A key feature of social media profiling is the ability to search and analyze data in real-time.

For lenders, this capability offers two main benefits:

1. Quick decisions boost loyalty. Faster decisions improve user experience, keeping customers loyal. Borrowers get credit application responses in seconds, unlike traditional checks that take days or weeks.

2. Speed increases efficiency. Quick processing lets credit organizations handle more applications and complete more transactions.

#4. Effective fraud detection

The use of alternative data sources, including social media, helps identify fraudulent schemes more effectively. 

Unlike traditional information, a digital footprint is nearly impossible to fake.

Here’s how social media profiling can help detect potential fraudsters:

• Lack of social media profiles may be a reason to assign a high-risk level to an applicant. This can seem suspicious, as the average user typically has 6–7 accounts on social platforms.   

• Data discrepancies can also serve as a red flag for lenders. These may include inconsistencies across multiple platforms or between online information and the details provided in the loan application.

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Best practices for risk managers using social media profiling

For effective data enrichment, lenders should follow best practices for social media credit scoring within their companies:

#1. Complement, don’t replace

Use alternative data as a supplement to information obtained from credit bureaus.

A complete rejection of financial information is not feasible, as data about delinquencies or collections can still be useful in making an objective lending decision.

#2. Focus on real-time data aggregation

To find social media profiles​, use tools that provide high-quality information about potential borrowers. Pay attention to the accuracy, relevance, and informativeness of the data.

Platforms like the RiskSeal Digital Credit Scoring system fall into this category.

#3. Leverage advanced technology

Use scoring systems based on artificial intelligence and machine learning. These technologies improve the decision-making process and risk assessment, reduce default and fraud rates, and enhance operational efficiency.

Additionally, they help credit organizations optimize their operations and improve the quality of their credit portfolio through personalized offers.

#4. Ensure compliance

When choosing a tool that provides alternative credit scoring with an API, opt for a provider that prioritizes data privacy following global standards.

For example, the RiskSeal credit scoring system, as a third-party processor, fully complies with GDPR and other regulations governing data security.

You can read more about how this is implemented on our platform in our article on GDPR compliance.

#5. Adopt transparent practices

When using social media profiling to assess creditworthiness, creditors must demonstrate care for users. 

This includes informing them about the purposes of data collection and the methods of processing their information. It is also essential to obtain prior consent for the collection, use, and storage of data.

This approach helps build trust-based relationships with consumers.

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Case study. How RiskSeal optimizes social media credit scoring

RiskSeal Digital Credit Scoring system specializes in analyzing the digital footprint of potential borrowers. Among other things, the platform conducts  social media profile searches​, granting access to the following user data:

• Personal data of applicants. Any discrepancies between the personal data provided in the application and the social media profiles can be considered a potential sign of fraud.

• Profile pictures. The system compares profile photos with the selfie provided (if required by the loan terms). Any discrepancies will also signal potential fraudulent intentions.

• Education and career information. This data is typically available on social networks for professional networking (e.g., LinkedIn).

• Applicant's location data. The system compares geolocation tags left online with the address provided in the loan application. Differences in this data are another red flag for the lender.

Based on these and other digital traces, RiskSeal creates a digital credit score for the borrower. It allows for an informed decision to be made regarding lending.

By turning to RiskSeal, lenders get:

• 400+ credit data points aggregated from over 200 sources in real-time.
• Seamless processes that guarantee a balance between positive customer experience and reliable risk management.

As a result of the collaboration, lenders experience an increase in approval rates. With alternative data, they have the opportunity to lend to people without a credit history who are not served by traditional banks. This enables a twofold increase in the number of transactions processed.

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Advantages of social media profiling at RiskSeal

RiskSeal Digital Credit Scoring platform provides its clients with the following benefits:

1. Analysis of numerous social media, including local ones. Along with global networks such as Facebook, Instagram, or LinkedIn, we analyze resources that are popular in specific regions.

2. High data quality. RiskSeal focuses on analyzing borrowers’ digital footprints. Unlike financial documents, these data are nearly impossible to falsify. Moreover, the large number of resources analyzed allows for the creation of the most detailed applicant profiles.

3. Real-time checks. Access to real-time information ensures the relevance of the data provided.

RiskSeal’s clients successfully use social media profiling for solvency assessment. They note an expanded target audience, optimized risk management, and an improved customer experience.

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Key takeaways

To summarize, here are the key points of this article.

• Modern credit institutions face limited opportunities with traditional credit scoring. This problem is effectively solved by using alternative data, particularly social media profiling.

• Based on information obtained from social media, lenders can perform digital credit scoring. This allows lending to the unbanked population and effectively detects fraud.

• For successful collaboration between social media and banking, it is important to implement best practices in credit scoring processes. These include combining traditional and alternative data, transparency of processes, compliance with regulations, and more.

• The RiskSeal scoring system specializes in social media profiling within the analysis of applicants' digital footprints. Collaborating with us allows clients to expand their customer base and improve the quality of their credit portfolio.