Big data has pervaded every area of our lives, and it was only a matter of time before banks and lending institutions bought into the numerous insights that big data affords. Today, financial institutions are using massive data collection and analytics to understand consumers’ and businesses’ spending habits and lifestyles and then determine whether they’re lending risks. This information may influence whether or not you get a loan, the type of loans offered to you and the interest rates charged among others.
As a customer, your bank or debt consolidation company will have your basic information – name, address, birth date, identification details, credit/debit card information, gender, etc. The bank will then use your account information to mine other details; card transactions, bill payments, purchase data, etc. In addition, they can buy anonymous data from third-party sources and then use analytics tools/software to match the data to their consumer database. This gives them a richer view of who you are, what your business does and whether or not you’re a lending risk based on your online browsing and purchase habits.
What do they see?
While big data research and application is still new for financial institutions, it is commonly used to find new clients, determine which products to develop and offer to whom, detecting fraud and understand consumer interactions with the brand. They do this primarily by correlating and inferring.
Both individuals and business owners should be proactive in ensuring their information remains private. You can do this by adjusting your privacy settings on social media sites and changing your browser settings so that browser histories are wiped out at the end of every session. As a consumer, you may not know when you’re providing private information, so it’s important to set up ways to minimize your exposure.
It’s important to mention that not all usage of big data is bad. For instance, many banks harness data from their mobile apps to improve service delivery. They can also use loan application data to tailor and improve lending terms/products or find out where to place new ATMs and branches based on places their customers frequent.
How to turn tables in your favor
Remember that the aim of a business is to make a profit, and for banks, this means offering you the highest interest rate that you will accept. Other than changing your privacy settings to limit the amount of data being collected about you, you can strengthen your case by being careful about your spending habits and checking your lender’s online debt reviews, especially when using traceable payments like online transactions and credit card payment.
If you keep making high-end purchases and splurging on luxury vacations, you can be sure that when you need a loan, the lender will offer a significantly higher rate. Try to keep some expenditure offline by paying in cash. By being careful about what you buy and making sure you pay your debts (credit card, utility, etc.) on time, you can give the right information to your lenders so that you’re always in a good position should you need credit. The worst thing you can do is mar your record with overspending or gambling and other spending vices.
It’s better to have a good record and never need to use a credit facility than to have a bad record and be stuck with few high-priced loans when you need one desperately.