Will YOU have to take a personality test to get a loan?

BORROWERS applying for credit cards, personal loans or even mortgages could soon face a personality test before being accepted, Money Mail can reveal.

Banks and building societies are looking at introducing a so-called psychometric test to better calculate the chances of borrowers missing a repayment.

On top of routine credit checks, applicants would also be told to answer a series of questions to examine their attitudes toward others, sense of honesty, integrity and general beliefs about society.

Their answers would then be fed into a computer program, which assesses how trustworthy — or otherwise — customers might seem to be.

This could then influence a lender’s decision on whether to give a loan.

The test could be of particular help where applicants have little or no credit history — typically younger borrowers such as students or the less well-off.

However, it could also be used for older customers applying for a deal who have never had a credit card or personal loan before.

Such tests are being trialled and one major High Street bank is understood to be close to signing up.

Money Mail revealed the development last week following a conference for credit experts at the University of Edinburgh Business School, which is behind the research suggesting personality tests can be effective.

More than 400 representatives of High Street banks, building societies, credit reference agencies and universities met to find ways to improve how they assess the risk of lending money.

Jonathan Crook, director of the Business School’s Credit Research Centre and professor of business economics, says: ‘Psychometric test results would, of course, be used in addition to existing data held by credit reference agencies and the banks. And they would need to prove accurate before any bank would sign up.

‘But the 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.’

Lenders are increasingly keen to find more accurate — and cheap — ways to better assess a customer’s risk of default to avoid costly write-offs.

Since 2010, lenders have had to write off an average £13.2 billion every year, according to Bank of England figures.

At the moment, lenders largely rely on three credit- scoring agencies — Experian, Equifax and Callcredit — to check your history of borrowing and decide how much of a risk you pose.

As a rule of thumb, anyone on the electoral roll with a long-term address who repays debts promptly should be given the best rates of interest. But being low risk on paper doesn’t always mean you get the best deal.

First, many banks use only one credit agency rather than all three because of the cost of paying them. This leads to many key bits of information about behaviour — a history of regular energy bill payments or store card repayment history — being excluded.

Second, you can be rejected outright because banks also use their own software to rate you on top of information already gleaned from an agency.

However, the software’s complexity means mistakes creep in.

For example, Money Mail has heard of an occasion when a customer who has been flagged up as a good bet to manage their overdraft on a new bank account has run up thousands of pounds worth of unrecoverable debt in just two months.

Part of the personality tests’ appeal lies in helping to iron out such mistakes. These types of tests are already routinely used in the workplace. Bosses often use them when hiring staff to assess their potential weaknesses and strengths, and judge how well someone will fit into a team.

However, using the tests for credit scoring would mark a departure for lenders trying to keep a grip on ballooning debt.

The test model by the University of Edinburgh’s Business School sees would-be borrowers give a rating to a series of personal statements.

They include ‘I believe others try to do the right thing’, ‘I believe in human goodness’, ‘I pay attention to small details’ and ‘I find it hard to make changes’.

Each response is scored and an overall total then worked out. This result is fed into software that predicts different personality types and how likely they are to miss pay- ments or to default. Using this, banks would get an idea of how trustworthy, reliable, emotionally stable and conscientious a customer might be.

The more conscientious you appear to be, the lower risk you pose and the better your credit score. The university has also launched software it says can more accurately predict which customers are more likely to fall behind on payments and exactly when.

Banks can use this information to tailor credit card, loan and mortgage rates to an individual, according to the risk they pose. However, consumer groups expressed doubts personality tests could make a difference.

James Daley, of consumer champion Fairer Finance, says: ‘Anyone who’s taken these tests will know they are open to manipulation and they’re not an entirely reliable way of gauging how people will act.

‘If banks think they can psychologically screen bad debt risks, they are deluding themselves.

‘Individuals are complex and it’s impossible to predict how someone will act in five years based on a tenminute test today.’

Eric Leenders, executive director of retail at the British Banker’s Association, says: ‘I can never see psychometric testing replacing the straightforward affordability tests.

‘However, it is possible that in some cases tests of this kind might be able to help determine whether a customer is vulnerable and needs extra support.

‘It’s right that banks take a look at new types of technology that could perhaps benefit consumers.’