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3rd September 2015

Possible Introduction of Personality Tests for Credit Applicants

This week we learned that some banks and building societies are considering the introduction of psychometric personality tests for potential borrowers.

Research conducted by the University Of Edinburgh Business School suggests that such personality tests could enable lenders to more efficiently and profitably assess credit applications. They contend that using their psychometric tests could help to identify borrowers who are more (or less) likely to keep up with their contractual debt repayments.

credit application personality test

One major bank that has recently trialled the system is reportedly close to introducing it fully.

How Would Psychometric Testing Work?   

Credit applicants would be asked to answer a series of questions. The answers provided could provide an insight into the applicant’s honesty, attitude towards others, and integrity. The full set of responses might then be interpreted into an overall “trustworthiness” rating.

Some examples of the types of questions to be used have been reported in Money Mail. Applicants could be asked to indicate the scale of their agreement or disagreement to a series of statements such as:

  • If people are rude I shrug it off.

  • I believe in human goodness.

  • I find it hard to make changes.

  • My goals in life are clear.

  • I prefer working in a stable rather than flexible environment.

  • I feel uneasy if I’m the centre of attention.

Your answers would be analysed to help place you into one of a range of personality types. Relevant factors to your assigned personality grouping could be how conscientious or emotionally stable you’re perceived to be for example.

Each personality-type group is assigned different scores for their propensity to stick to debt repayment schedules, or for the likelihood of them defaulting on their credit commitments. A bank or building society could then factor this information into their lending decision.

Readers may view these types of psychometric tests as being quite similar to those already used by some employers when they are assessing the suitability of job applicants.

Is This The End of Credit Scoring?

No! The psychometric testing of potential borrowers is likely to be complementary to existing systems of assessing creditworthiness. It aims to enable lenders to further refine their existing processes and systems to make better lending decisions. Other factors that would still remain relevant to your credit applications in the future would be:

  • Traditional credit checks.

  • Information that the bank already holds about you.

  • Other information provided during the credit application process.

  • Whether the repayments will be affordable for you.

  • The acceptance criteria used by the lender for any particular credit product.

Who Could Benefit?

A Director of the University Of Edinburgh Business School said, “… test results would be particularly useful when it comes to lending to customers who have never borrowed before and don’t have a credit history that proves to banks that they are a good risk”.

Money Mail points out that the beneficiaries could include the young, including students. Less well-off and older persons might also benefit if they were to apply for credit having previously made little use of it in the recent past.

At Trust-Deed.co.uk we feel that another group of people might also benefit. Persons that have experienced serious credit difficulties and subsequently entered into personal insolvency might also gain if this system becomes commonly used in the future.

A Scottish trust deed or sequestration (bankruptcy) now effectively runs for at least four years. It remains present on a credit report for a total of six years from the time that it started. Similar considerations apply for those that have successfully completed a debt arrangement scheme (DAS) or a debt management plan.

Following the completion of a protected trust deed or sequestration, the presence of this insolvency on a credit report makes it very challenging to access credit. Accordingly, when the insolvency drops off the credit file after six years, many individuals will have little or no credit information remaining on their credit file.

Similarly to a younger person, or similarly to an older person that simply hasn’t wanted or needed to access credit previously, they’ll have little information on their credit report to prove to a lender that they’re a good credit risk. This can create a barrier to accessing mainstream credit for an extended period of time.

The introduction of personality tests for credit applicants might be a partial solution to this problem. Potentially trustworthy borrowers might be identified by lenders, even if they don’t have much evidence of recent good credit use on their credit record. 

Other Key Factors

We feel that the introduction of an aspect of personality testing could be of long-term benefit to some of those that have previously overcome credit problems. However, following the completion of trust deeds in Scotland and other debt solutions, there are other important steps that can be undertaken by those for whom this is an important subject. These include:

If you have other questions on this subject we suggest that you raise them in our forum. Other members and a panel of debt experts will try to assist you.

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Wylie & Bisset Grant Thornton

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