Cost-sensitive learning for profit-driven credit scoring
| Autor: | Lize Coenen, Darie Moldovan, George Petrides, Wouter Verbeke, Tias Guns |
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| Přispěvatelé: | Data Analytics Laboratory, Business technology and Operations, Electromobility research centre, Faculty of Economic and Social Sciences and Solvay Business School |
| Rok vydání: | 2020 |
| Předmět: |
Cost-sensitive learning
credit scoring Marketing 021103 operations research Actuarial science Strategy and Management Cost sensitive 0211 other engineering and technologies 02 engineering and technology Management Science and Operations Research Bad debt Management Information Systems profit-driven analytics application scorecards Loan 0202 electrical engineering electronic engineering information engineering For profit 020201 artificial intelligence & image processing Business |
| Popis: | Application scorecards allow to assess the creditworthiness of loan applicants and decide on acceptance. The accuracy of scorecards is of crucial importance for minimizing bad debt loss and maximizing returns. In this paper, we extend upon prior benchmarking studies that experimentally compare the performance of classification techniques to discriminate between good and bad applications. We evaluate a range of cost-sensitive learning methods in terms of their ability to boost the profitability of scorecards. These methods allow to take into account the variable misclassification costs that are involved in rejecting good loan applications and accepting bad loan applications. An approach is proposed to estimate these misclassification costs, and various approaches to handle missing credit bureau scores are evaluated. The results of a case study involving a Romanian nonbanking financial institution (NBFI) indicate that cost-sensitive learning complements the existing state-of-the-art scorecard of the NBFI. The best performing cost-sensitive models are found to increase profitability across the three business channels, with a single-digit improvement for two of the channels and a double-digit increase for the other one. The result is partly explained by the default rate, which is higher for this latter channel and therefore offers greater potential for improving profitability. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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