How Does Your Digital Footprint Affect Your CIBIL Score?

The CIBIL score is a three-digit number that indicates a borrower’s repayment capacity and creditworthiness. Credit information agencies collect data from banks, NBFCs and other financial institutions and based on this data, they assign individuals a credit score which ranges between 300 and 900. The higher a borrower’s credit score, the better their chances of being eligible for loans. For years now, lenders have used credit scores to measure the risk involved in lending money to a borrower and the credit scoring models have proved useful for lenders. However, the world is changing. Today, banks are susceptible to frauds and thousands of customers around the world become prey to cyber fraud each day. Identity theft has become a common occurrence – cyber criminals steal the identities of people with good credit scores and apply for a Home Loan under their name. Though credit scoring models have advanced with time, the concept of credit score cannot protect lenders and borrowers from cases of identity theft and cyber fraud. However, the concept of the digital footprint can. This article discusses everything there is to know about digital footprints. 

What is a Digital Footprint?

When people use the internet, sometimes, they leave behind information without even realizing it. For instance, very often, we permit websites to collect cookies about us. Similarly, we also allow apps to collect data about us. Thus, when we use the internet, we leave behind a lot of information about us without even realizing it. Data analysis companies collect this data and use it to create buyer persona. For instance, if you are looking at the meaning of digital footprint entirely from a lender’s and a borrower’s perspective, data analysis companies collect data related to a borrower’s purchase history, the websites they have visited, the searches they have made, etc. This does not only allow data analysis companies to understand a borrower’s intent regarding loan repayment but it also allows them to keep both lenders and borrowers safe from identity theft, etc.

Types of Digital Footprints: Active and Passive

An important thing that borrowers must know about digital footprints is that these footprints are of two types: active and passive. Let us understand the difference between the two.

When borrowers consciously decide to share information about themselves through cookies or by subscribing to a newsletter, the information they leave behind is known as active digital footprints. Similarly, when a borrower logs into Instagram or Facebook with their registered email ID and password, they agree to let the social media platform collect data about them. The videos and the text messages that you post, all have a meaning and they help data-analysis companies create your digital persona better. Since you have consciously allowed these social media companies to collect information about you, the information they collect and use would be counted as active digital footprints.

On the other hand, when websites and companies collect information about a borrower without the borrower giving their consent, the information collected is known as a passive digital footprint. For example, sometimes when you visit a specific website, the company operating it collects information, such as how many times you visited their website, your IP address, etc. Similarly, social media platforms also collect information regarding the posts you have liked and commented on to understand your digital persona better. These are all cases of passive digital footprint.

The Relationship Between Digital Footprint and CIBIL Score

How digital footprint can affect CIBIL score

The term digital footprint refers to the data left by individuals on digital platforms such as social media profiles and web cookies. It helps establish their behavioral patterns on the web. Digital footprint data includes factors such as purchase history, browser activity, and IP address that can be useful in fraud prevention.  

Users who create an active digital footprint are active on social media and the internet in general through their posts and blogs. Users with a passive digital footprint leave their information in the form of cookies when they browse the internet. 

Alternative credit scoring models are increasingly using digital footprints to establish creditworthiness, especially of new borrowers and the unbanked sections of society. Hence, your online behaviour can potentially affect your credit score. 

Role of social media in digital footprint

Everything you post, like, comment, share, and interact with, is generating your personality type in the background and adding to your digital profile. As such, social media shares a significant portion of your digital footprint. 

How financial institutions use digital footprints to assess creditworthiness

Digital footprints use digital identity data, digital presence data, and the information derived from social media to establish user persona and prevent the occurrence of financial frauds. Mainly, this data is churned to pull out information for identifying the creditworthiness of the unbanked section of the society. 

Here’s How Digital Footprints can Prove Helpful for Borrowers and Lenders

These days, people have become wary of digital footprints and how companies use them to their advantage. However, a digital footprint is not always a bad thing. In fact, when it comes to the lending business, borrowers may see lenders going the extra mile to collect and analyse a borrower’s digital footprint. Doing this can help lenders protect borrowers from cases of identity theft. Further, these days, checking a borrower’s credit score isn’t enough. More and more people are opting for loans which has also led to increasing cases of loan default. It may sound surprising but for those with an online CIBIL score of 750 and above may also default on loans. Increasing cases of loan defaults have led to lenders suffering major losses in the recent past. Thus, checking a borrower’s free CIBIL score is no more enough. Today, lending companies also study information collected via a borrower’s digital footprint, such as their e-commerce merchant rating, utility bill payment history, remittance history, etc. to understand and gauge the borrower’s creditworthiness and their ability to repay loan on time.

Also Read: Tips to Maintain Your Business CIBIL Score Above 700 

Further, even credit information bureaus realize that there is a dire need to change the way credit scoring models work. Today, considering only the CIBIL score affecting factors aren’t enough while calculating a borrower’s CIBIL score. Fintech companies are combining historical data along with new consumer data to accurately figure out a borrower’s repayment capacity and creditworthiness. This is crucial to make sure lenders are sanctioning loans only to those borrowers who can repay the loan money on time. 

The world is changing and so are credit users. Today, like lenders want to protect themselves from loan default, borrowers too want to have the best experience. They want to work with a lender who understands their needs and is willing to go the extra mile and deliver a loan product that caters to their needs and desires. The thing about digital footprints is that it allows lenders to do just that. Fintech companies analyse the data about a borrower to understand what they need and what they can afford and using this data, Fintech companies are able to deliver an experience customised to a borrower’s needs and wants. Thus, in simpler words, digital footprints allow lenders and Fintech companies to deliver a world-class experience to borrowers and serve them better. 

Lastly, here’s where the concept of digital footprint proves to be most handy in the current scenario. When a borrower has no credit history, their online CIBIL score check shows their credit score to be zero or negative. However, a zero or negative credit score does not mean that the borrower is unreliable and cannot be trusted with the timely repayment of loan money. It simply means that the borrower has availed of credit only recently and therefore, credit information companies do not have ample data on the borrower to assign them a CIBIL score. Sometimes, borrowers delete their old loan accounts. This, too, leads to their credit history getting deleted and their credit score becoming zero. Borrowers whose credit score is zero often find it difficult to get approved for loans, simply because the lender does not have enough information to understand their creditworthiness. However, in this case, the lender can analyze a borrower’s digital footprint to assess their repayment capacity and assign them a loan based on their interpretation.  

Also Read: What Does a Zero or Negative Credit Score Mean?

Now that we know a little bit about the digital footprint, let us shift our attention back to credit scores as most lenders still gauge a borrower’s repayment capacity and creditworthiness based on their credit score. 

Key Takeaways

People look at the idea of digital footprints in the wrong way because they think it is a method companies and advertisers use to collect information about them without their knowledge. However, this is not always the case. Sometimes, borrowers share information on their own and this information helps data analysis companies create loan products tailored to one’s needs and wants. Further, the concept of digital footprint also helps lenders assess the creditworthiness of those borrowers who do not have a CIBIL score. However, borrowers must know that many lenders still use the concept of the CIBIL score to assess a borrower’s creditworthiness. Therefore, it is crucial that borrowers also understand the impact of various factors on a borrower’s creditworthiness.