You may already know that your credit score is a very important component of your financial health. Banks and other financial institutions use your credit score to determine whether you qualify for credit, such as a student loan, car loan, credit card, or even a mortgage to buy a house. Your credit report, which contains your entire credit history (such as how much debt you owe and to whom, as well as if you have any unpaid debts that have been sent to collection agencies), is used to determine this score. Your credit report can be checked when applying for certain jobs (especially those related to financial careers) or even when renting an apartment. Now, according to The New York Observer, social networks are now being used by some lenders to evaluate whether you’re likely to pay them back, which could affect your credit score in the future.

This new trend is being pushed forward by new credit scoring startups like Credit Karma, which use algorithms to gather social data for financial institutions. Ken Lin, CEO of Credit Karma, told The New York Observer that “There is this concept of birds of a feather flock together,” and by assessing your social interactions on networks like Facebook and LinkedIn, banks can better determine whether you’re likely to engage in certain types of behavior that make you more of a risk. Banks are already using social networks to “friend” their customers, which then allows them to see some of their friends’ data. Startups like Credit Karma obviously aim to make this easier, allowing your bank — and future lenders — to decide whether to award you a new car loan based on not only your social history, but also those of your friends.

We’ve mentioned before how many educational institutions — especially law schools — are using social media to have an impact on admission decisions. Similar to educational institutions, financial institutions can’t currently use much of the data in social graphs to make lending decisions because using any data related to race, marital status, and receipt of public assistance is illegal and could contribute to a type of discrimination known as “redlining,” where certain demographics could be refused loans or charged higher rates based on racial, sexual, or other prejudice. However, if your friends happen to consistently post pictures or mention you discussing illegal activities unrelated to a status that can’t be discriminated against by law (such as underage drinking, drinking irresponsibility , or using illegal drugs), you may find that your access to credit could be denied or even revoked.

Of course, this new trend of social credit can work for you as well. Credit Karma’s Ken Lin notes that “If you are a profitable customer for a bank, it suggests that a lot of your friends are going to be the same credit profile. So they’ll look through the social network and see if they can identify your friends online and then maybe they send more marketing to them.” Lin notes that this type of practice “definitely exists today,” implying that banks are already using your social graph to identify the types of customers they want — and don’t want.

If you’re concerned that your Facebook friends could be hurting your financial future, there are several easy ways to prevent third parties from viewing your profile without our permission.

Change Your Default and Individual Post Privacy Settings

In 2011, Facebook changed its privacy settings, and you can now change who sees different Facebook posts. For example, you may want to only share pictures of last weekend’s bachelor party with your “close friends,” but might be okay sharing lyrics from your new favorite song with the public. You can toggle these settings on, but not via your mobile smartphone. When you post an update with your Android or iOS device, posts will automatically be visible by your Default setting. Make sure you’re okay with who sees each and every one of your posts shared via mobile phone by changing this setting through Privacy settings under the header Control your default privacy. Changing this setting is especially important if you’re worried about your bank or a future lender seeing content that could have an impact on its opinion of your responsibility or credibility, and thereby potentially reject your application for credit.

Limit the Audience for Past Posts
You may have noticed that the new Timeline design for Facebook profiles has been rolled out to almost everyone. As a result, some past Facebook posts you thought were gone for good are now visible for all of your friends to see — and perhaps the public, too. If you have ever previously set the visibility of a past Facebook post to anyone more than just friends, these posts will be visible on your Timeline — all the way back to when you started using Facebook. In light of the possibility that financial lenders can see this information to determine your worthiness of credit, you will want to limit the audience for posts to only your friends. This is a setting you can easily change — and should change — in your Privacy settings.

Have you ever been rejected or denied financial help because of your social networks — or even just offline reputation? Are you worried that Facebook could someday have a negative impact on your credit score? Let us know your thoughts in the comments.