To no surprise, understanding a personality is a very complex task. 

While launching our research, we found the Big Five personality traits model to be a solid starting point. Originally developed in 1949, this influential theory was established by American Psychologist D. W. Fiske and proposes that a personality can be described by five complementary dimensions forming the acronym OCEAN:¹ 

• Openness: A strong desire for new experiences, marked by curiosity, creativity, and a love for exploring novel ideas.
• Conscientiousness: A tendency to be organized, responsible, and dependable, with a focus on efficiency and attention to detail.
• Extraversion: A preference for social interaction and energetic engagement with others, characterized by being outgoing and enthusiastic.
• Agreeableness: A compassionate, cooperative nature that values kindness and empathy, often avoiding conflict and harsh judgment.
• Neuroticism: A tendency toward emotional sensitivity, often experiencing anxiety or stress, with less resilience in handling challenges.

We also considered other personality models by conducting a deep-dive analysis of over 35 peer-reviewed articles that discussed the link between personality traits and debt repayment. We discovered that, out of OCEAN, it is conscientiousness and neuroticism that had the clearest influence on financial behavior. But before we dive into these two factors, let’s take a look at a personality trait beyond the Big Five model that also acts as a determinant of credit default rates: impulsivity.

According to the current research out there, one of the most significant personality predictors of debt repayment issues is impulsivity, or the tendency to act quickly without thinking through consequences. "Impulsive borrowers are more likely to default on their loans due to a lack of financial discipline and planning," explains Dr. Emily Sharma, a behavioral economist.² "They may be drawn to the immediate rewards of new purchases or experiences, rather than prioritizing their debt obligations.” 

This means that if my brother tends to be more “impulsive,” he may have a harder time delaying gratification and resisting expense-related temptations than me. If this were the case, he would be driven to make spontaneous, shortsighted financial commitments that, in the near future, would put him into a financially challenging situation. This begs the question: could his impulsivity be “countered” if he was just more organized? Maybe—but that’s where conscientiousness comes into play.

According to the Big Five model, conscientiousness is defined as one’s ability to control impulses and delay gratification, be goal-directed and plan for the future, and follow social norms and expectations.³ In short, this trait refers to how well you follow the rules of the game in your social (and organizational) sphere. This especially includes the things that are technically legal but society would frown upon you for… just like defaulting on your debts.

Given this definition, it came as no surprise that a low level of conscientiousness is generally associated with a higher level of credit defaults. 

In fact, given the amount of research^5,6 that supports this strong negative correlation—where high levels of conscientiousness lessen the likelihood of reckless spending—we hypothesize that, in terms of hierarchy, conscientiousness leads the way amongst all the factors influencing financial behaviors. 

In practice, this means that it is the varying levels of conscientiousness that my brother and I have (and not necessarily his impulsiveness alone) that dictate the main differences between our attitudes towards financial discipline. Now, wouldn’t this financial pressure make him stressed all the time? Well, maybe, and as far as personality traits go, the way we deal with stress is known as “neuroticism.”

Neuroticism, at least in the Big Five model, marks one’s disposition to experience heightened negative emotions, including anger, anxiety, self-consciousness, irritability, emotional instability, and depression.⁴

According to our research, there is a positive correlation between an individual’s level of neuroticism and credit defaults—which, unfortunately, is not a positive thing. This means that the more stressed you usually get, the more likely you are to be reckless with your money. 

Why is this the case? Well, Dr. Sharma explains that, "Neurotic borrowers may be more prone to panic or give up when faced with repayment challenges, rather than seeking solutions," and that, "They may also be less responsive to outreach and support efforts from lenders." In other words, the more “neuroticism” you tend to experience, the less self-control you probably exhibit due to emotional instability and reactivity. 

The above is not to say that my brother generally has trouble dealing with stress or that he’s an overall anxious person, but it does point to the fact that experiencing negative emotions may impact how he manages his personal finances.

Well, we can all start by growing our awareness that it is not only external factors that influence our financial behavior. Rather, there are some critical components of our personalities that might play a role in increasing our credit defaults. This is not to say we are automatically doomed if our profile is not favorable toward financial responsibility. By recognizing these traits—high impulsivity, low conscientiousness, and high neuroticism—it is possible to proactively implement strategies to overcome their corresponding spending behaviors.

Some practical steps can include the following:

• For high impulsivity: Try automating your debt payments to ensure they stay consistent—even when you’re not.
• For low conscientiousness: Implement budgeting techniques and spending trackers to enhance financial discipline and awareness.
• For high neuroticism: Practice mindfulness and stress-management techniques to mitigate anxious tendencies from sabotaging your repayment efforts.

For lenders, incorporating insights about personality traits into their credit evaluation and customer support models can lead to significant improvements in portfolio performance and customer outcomes.

This means going beyond traditional measures like credit score reviews and analyses of household incomes. In addition, banks can start implementing personality assessments or even more sophisticated data-driven models to understand the unique behavioral tendencies of each applicant. We are not suggesting that banks should use this knowledge to reject customers, but that the results of these assessments and models can help inform credit characteristics and, most importantly, lead to personalized loan structures, tailored repayment plans, and specific support services to better fit the individual's needs and habits.

By taking a more personalized—and in this case, personality-informed—approach, lenders can improve their overall portfolio performance, reduce default rates, and better support the long-term financial well-being and value of their customers. 

On a personal level, I think that my brother and his banking institution should sit down to talk about his personality traits and how they influence his credit default likelihood. Then, they can develop a personalized credit scheme that is more fitting for my brother’s profile. Who knows, maybe a “prepaid credit line plus weekly automated payments up to a certain threshold” type of arrangement would be fitting. If it were up to me, though, I would just have him triple-confirm every single purchase by asking: 

1. Do you really want to buy that? 
2. Do you really, really, really want to buy that? 
3. Come on! You know you don’t need it, but if you really, really, really, really want it, type your PIN plus your daughter’s birthday plus your license plate number after the bip!

On a more serious note, here at TDL we strongly believe that lenders should make a conscious effort to understand yet another dimension of their customer base and take it into consideration when developing credit schemes: their personalities. This can be achieved by mapping the traits of their users and then developing models to translate this information into specific adjustments to their product portfolio, whether that be credit cards, mortgages, or small business loans. 

We know customers will continue using credit and banks will continue providing it. So, why not try to design a customer-bank relationship that begins with getting to know one another at a deeper level? Remember that personalities are just that: personal. And although we want to strengthen financial transactions, that doesn’t mean that the interactions between customers and banks have to be fully transactional, too. Through this new approach, we wouldn’t just be fixated on stocks, but taking stock in one another.

If you would like to know how we can help your organization build these models, please contact hector@thedecisionlab.com.