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Character Counts: Psychometric-Based Credit Scoring for Underbanked Consumers

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  • Saul Fine

    (Innovative Assessments International, Tel Aviv 6812508, Israel
    Department of Psychology, University of Haifa, Haifa 3498838, Israel)

Abstract

Psychometric-based credit scores measure important personality traits that are characteristic of good borrowers’ behaviors. While such data can potentially improve credit models for underbanked consumers, the utility of psychometric data in consumer lending is still largely understudied. The present study contributes to the literature in this respect, as it is one of the first studies to evaluate the efficacy of psychometric-based credit scores for predicting future loan defaults among underbanked consumers. The results from two culturally diverse samples of loan applicants (Sub-Saharan Africa, n = 1113; Western Europe, n = 1033) found that psychometric scores correlated significantly with future loan defaults (Gini = 0.28–0.31) and were incrementally valid above and beyond the banks’ own credit scorecards. These results highlight the theoretical basis for personality in financial behaviors, as well as the practical utility that psychometric scores can have for credit decisioning in general and the facilitation of financial inclusion for underbanked consumer groups in particular.

Suggested Citation

  • Saul Fine, 2024. "Character Counts: Psychometric-Based Credit Scoring for Underbanked Consumers," JRFM, MDPI, vol. 17(9), pages 1-10, September.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:9:p:423-:d:1483040
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    References listed on IDEAS

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    1. Jodi C. Letkiewicz & Jonathan J. Fox, 2014. "Conscientiousness, Financial Literacy, and Asset Accumulation of Young Adults," Journal of Consumer Affairs, Wiley Blackwell, vol. 48(2), pages 274-300, June.
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