The Boston Globe ran a story a few days ago about a company called Cignifi who has developed a way to calculate a person's credit report in the absence of any previous credit history.
The claim is counter-intuitive to how we understand the assessment of credit risk in the developed world because Cignifi's plan has very little to do with how much debt - if any - you've accrued in your lifetime. Instead, it creates a credit report based on a completely separate metric: your mobile phone activity.
Here's the gist: if a potential consumer or patron has no credit score due to no history of debt, it's hard for a business to assess the potential risk involved in doing business with this person. A way to side-step that obstacle would be to enlist the services of Cignifi, which will calculate the credit risk of anyone with a mobile phone based on that user's mobile phone behavior (this premise being functional only in the 21st Century assumption that everybody has cellphones these days). The way a person uses their mobile phone, Cignifi claims by way of their website, "is highly predictive of an individual consumer’s lifestyle and risk."
Despite how such a calculation could seriously affect the quality of someone's living standards, Cignifi's website doesn't provide much background on their science:
Cignifi patent-pending analytics technology turns billions of raw mobile phone calls, messages, and payments into unique insight. Our multi-dimensional models deliver scores based on hundreds of distinct variables.
Capturing changes in subscriber mobile behavior, Cignifi dynamically updates scores. Unlike traditional credit scores, Cignifi Scores quickly adapt to customers' evolving lifestyles, risks, and needs.
I can somewhat understand the lack of transparency given their patent-pending technology but at the same time it's important to know how your behavior affects your credit score. If I pay off my credit cards every month, I maintain a good score; if I blow off my bills for months at a time, my score suffers. In the end, I'm aware of the consequences of my actions. It's Operant Conditioning 101. The article from the Globe casts a little more light on Cignifi's number-crunching ways:
Cignifi has developed sophisticated modeling software that can look at usage data from consumers' mobile phones and make predictions about who that person is and how they live. There's no single data point —like making lots of short calls between 2 and 5 a.m. every morning —that suggests that someone is a bad credit risk. But Hakim says, "The way you use your phone is a proxy for your lifestyle. It's not random. So we're looking at things like the length of calls, the time of day, and the location you make them from. Also things like whether you top up [a pre-paid SIM card] regularly. We want to see how stable the patterns are. When you look at that, you can create these behavioral clusters that give you information about users' appetite for new [financial] products, and their ability to repay a debt."
That sounds like the typical diplomacy you'd expect from a group proposing an action that could potentially affect the quality of your life: carefully tailored to assuage any of the knee-jerk fears of people filling out applications for apartments or car loans while validating the insidious maxim "If you're not doing anything wrong then you have nothing to worry about." Until Cignifi is able and willing to share a little bit more about how they assess a person's credit risk based on mobile phone usage, any anxiety on behalf of the consumer is justified.
Conversely, I can understand not wanting to draw the ire of the Verizons and AT&Ts of the world. There's nothing quite like a company stating, "Hey, you use your phone too much in too many of the wrong ways, so your credit score is going down," to cause people to consider using their cellphones less (if that's even possible now). And the last thing wireless providers want is somebody out there giving their customers frightful reasons to not use their cellphones as much. Less cellphone use = less money spent = very unhappy wireless providers.
The service that Cignifi is offering could open up possibilities not previously available to consumers with no credit history. That would be a good thing. Then again, evaluating someone's "credit" based on what they do (or don't do) with their cellphones could be a hard step forward into a future of endless debt. I mean, how do exactly fix a bad "credit score" if it's based on your mobile phone habits? Get a LAN line? Tie a string between two tin cans and wait a year before applying for that student loan again?
So it's quiz time, readers: the Globe reports that Cignifi doesn't have any plans at this time to deploy the technology in the U.S. but that doesn't mean it's not coming. In what is likely the inevitable arrival of mobile phone usage-based credit ranks, what do you think about this new debt calculus? Thumbs up or thumbs down? Interested and optimistic or ill-advised and opportunistic? Share your thoughts with us in the comment section below.