Is your personality creditworthy?
Blacklisted? No banking history? A new kind of test could qualify you for a loan
Those who were previously disqualified from getting bank loans because they were deemed too risky or lacked a credit history may now qualify — if they have the right personality.
A candidate could become eligible for credit if their personality has the “right” levels of as openness, conscientiousness, extraversion, agreeableness and emotional stability.
Compuscan, an independent credit bureau, has recently teamed up with a United Kingdom-based psychometric testing company to provide this new way for financial institutions to assess South Africans for loans.
By using image-based tests, the companies “are able to add an additional layer of information about an applicant, taking into account their personality, motivations and likely behaviours”.
“Combined with existing data, or in its stand-alone form, this innovative method provides credit providers, financial service providers, insurance companies and risk managers with an alternative indication of a person’s creditworthiness and suitability for financial products,” according to Compuscan.
Someone willing to be considered for a personality test will be sent a link and can complete the test on a mobile device. “The results will be sent back to the credit provider to enable it to make a decision,” said Jacobus Eksteen, a senior data analyst at Compuscan. “A ‘positive’ test result could compensate for limited or no credit information.”
The method has been introduced in countries such as the UK, Poland, Turkey and Russia. It is now being made available in South Africa.
It could represent a breakthrough for South Africans wishing to break into the middle class.
Business science lecturer Martin Neethling, a researcher who participated in the recently released Unilever Institute of Strategic Marketing’s Aspirations Report, said being unable to get credit was the factor most often preventing people from reaching their aspirations. Currently, that gap is being filled by unsecured loans.
“Informal forms of finance such as borrowing from family and unsecured credit are used to fund things that provide a bridge into the middle class such as education, making home improvements to rent out rooms, buying a car (which provides access to more job opportunities and the ability to generate income), starting a small business from home, getting off the grid to become self-sustaining and playing asset catch-up, including paying a deposit on a lowcost house,” the institute’s Professor John Simpson said.
Scoring well on a psychometric test could mean new avenues of credit for these people.
But what personality traits are associated with a good credit profile?
“Unfortunately, we can’t give too much insight into the responses associated with lower risk to minimise the chance of individuals trying to manipulate the test results,” said Eksteen. “Nevertheless, showing the ability to plan will probably count in someone’s favour.”
Industrial psychologist and psychometrist Gillian Dona gave some further insight: “If I had to hypothesise, I would say being conscientious and rule conscious would suggest an individual would have a stronger internal drive or need to abide by regulations, do as they say they will and follow through on their responsibilities. However, there may be additional factors that show a high correlation with candidates that can be regarded as ‘good’ in terms of credit risk.
“People who are more naturally inclined to question authority and those individuals who are more impulsive and less consistent could be at a higher risk for not following through on their commitments when there are more important or pressing issues.”
How much of this behaviour can be predicted by a person’s response to a picture?
“Psychometric assessments can offer different insights and a depth of understanding that may not be revealed in other ways,” Dona said, but it shouldn’t be seen as infallible.
“Assessments are a predictor of behaviour and the information is often based off self-report response styles,” she said. “Thus, while assessments can enhance one’s awareness or understanding of the potential preferences and styles of behaving, it is not foolproof in predicting behaviour 100% of the time.
“While assessments can enhance the information you have about someone, it is not recommended that it be the only criteria to consider when making sound decisions.”
The tests need to be as fair as possible to ensure that they achieve their intended aims.
“The important considerations when using assessments is to ensure that they have been proven to be valid, reliable and free from bias for the population you are assessing,” Dona said. “Assessments in South Africa are strictly regulated to ensure that people are in no way disadvantaged.
“Thus my first question when bringing assessments into the South African context is: Has the necessary research been conducted to prove reliability and validity within our context?”
In response, Compuscan said: “The tools have been built in partnership with and validated by South African psychometric professionals and have been cleared for use in the country.”
Because the tests are based on selfreporting, there is some risk that respondents will skew the answers to present themselves positively.
“Sometimes, especially when the consequences are significant, people will choose to respond in a manner that presents themselves in the best light possible. Depending on the assessment tool, there are scales that can offer a sense of consistency or level of social desirability.
“However, every tool and set of results has a certain level of error in measurement. That is why it is recommended to have a battery of assessments or a combination of information sources that can be used to verify, confirm, and corroborate information,” Dona said.
Compuscan said the tests will be used as an additional rather than as a stand-alone tool.
They “will primarily be used to overturn decline decisions of individuals defined as being ‘marginal risk’ or have ‘limited information’,” Eksteen said. “If the psychometric score is not high enough to overturn the decision, the original decline reasons will still be valid. Borrowers who are accepted after taking the test will still have to provide proof of income and show that they are able to afford the credit.”
The National Credit Regulator (NCR) said psychometric testing falls within the ambit of current regulations.
“There is no credit legislation in place which precludes a lender from using psychometric testing as an indicator of credit behaviour, provided that the provisions of … the National Credit Act 2005, as amended, are fully complied with by a lender,” said NCR spokesperson Lebogang Selibi. But “this is one of many new products — not a credit practice — introduced by a credit bureau”.
“These products are not condoned by the NCR nor do they have any bearing on the requirements set out in the National Credit Act.”
None of the banks approached would comment at this stage on whether they will use psychometric testing. But Compuscan said there was “a lot of excitement about the potential of empowering those who currently can’t get access to credit”.
“A ‘positive’ test result could compensate for limited or no credit information”