How Does Your Digital Footprint Affect Your CIBIL Score?

A CIBIL score is a three-digit number that reflects a borrower’s creditworthiness and repayment capacity. It is assigned by credit information agencies based on financial data collected from banks, NBFCs, and other institutions. A higher credit score improves an individual's chances of securing loans on favorable terms. 

However, in today’s digital age, your online activities and financial behavior—collectively known as your digital footprint—also play a key role in influencing your credit score. From online transactions and bill payments to social media activity and digital lending history, digital data has become a significant factor when assessing creditworthiness. This article explores the different types of digital footprints and how they can impact your CIBIL score. 

What is a Digital Footprint?

Data analysis companies collect data generated from cookies and use it to create a 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.  

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. 

Active Digital Footprint

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 any social media site with their registered email ID and password, they agree to let the 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 considered an active digital footprint. 

Passive Digital Footprint

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, and your IP address. 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 behavioural 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 for 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 on, 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 fraud. Mainly, this data is processed to pull out information for identifying the creditworthiness of the unbanked section of the society.  

Here is 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, lenders may use digital footprints to protect borrowers from cases of identity theft. 

Information collected via a borrower’s digital footprint, such as their e-commerce merchant rating, utility bill payment history, and remittance history, is also used to understand and gauge the borrower’s creditworthiness and their ability to repay loans on time. 

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 a loan. 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 analyse a borrower’s digital footprint to assess their repayment capacity and assign them a loan based on their interpretation.   

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 a loan. 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 analyse 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?

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 important that borrowers also understand the impact of various factors on a borrower’s creditworthiness.