Soon, psychometric personality tests could be added to the myriad ways in which lenders assess the eligibility of potential borrowers in the future.
The idea is that a test is undertaken and the results passed through a computer program that then analyses the results. This, coupled with information from credit checks, paints a more accurate picture of the viability of the customer in question.
The personality test comes into its own when candidates are considered who have limited credit history, so is particularly helpful when it comes to assessing younger customersí elibigility to borrow.
The idea is being trialed by various banks with at least one said to be on the verge of implementing one. This is following research from the University of Edinburgh Business School that suggested such tests could be an effective means of assessing candidates for borrowing.
Jonathan Crook, of the Schoolís Credit Research Centre, has said:
ìPsychometric test results would, of course, be used in addition to existing data held by credit reference agencies and the banks. They would need to prove accurate before any bank would sign up.î
He added that: ìthe test results would be particularly useful when it comes to lending to customers who have never borrowed before and donít have a credit history that roves to banks that they are a good risk.î
This move is a welcome one from banks and lenders who are keen to refine their assessment process in order to cut down the number of debts they are forced to write off. Indeed, since 2010, an average of £13.2 billion pounds worth of debt is written off each year.
Currently, banks use credit checks run by the three main credit-report agencies in the UK: Equifax, Callcredit and Experian in order to ascertain the risk of lending to any particular candidate. But since many banks only use information from one (in order to avoid having to pay all three), certain bits of information can get left out.
This, coupled with complex checking software run by the banks themselves, means that several instances have been reported where customers have been incorrectly assessed and either accepted when they shouldnít have been and then running up excessive debt, or vice versa.
The psychometric test supposedly reduces the chance of this happening by, at least, adding one more checking method to the pot, and at most, adding a method that is potentially far more accurate than those already in use.
The form of the test is in a series of statements such as ëI pay attention to small detailsí and ëI am ambitiousí. Candidates are asked to rank each statement anywhere between ëstrongly agreeí and ëstrongly disagreeí.
The University of Edinburgh claim to have designed software that can accurately predict the borrowing habits of customers based on the results of such a test, allowing banks to create bespoke loans or credit card deals that suit each customer perfectly.
However not everyone is as optimistic about the validity of such tests. A spokesman for Fairer Finance, a consumer watchdog group, has said that ìanyone whoís taken these test will know that they are open to manipulationÖIf banks this they can psychologically screen bad debt risks, they are deluding themselves.î
So the jury remains somewhat out on these psychometric tests, but only time will tell, as more and more banks trial such programs to see if they really will work.