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Questions tagged [credit-scoring]

In finances, a credit score is a number representing the creditworthiness of a person.

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Potential heteroskedasticity in maximum likelihood

I've created a bad loan classifier model using logit regression and maximum likelihood. The actual v expected comparison of the result is shown below. In order to create the chart, we binned the ...
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Information Value Definition on Siddiqui "Credit Risk Scorecards" Book

I was studying about information value, and saw the definition on "Siddiqui, Credit Risk Scorecards". I'm searchin for some references on why the formula there is that way, and also for the ...
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WOE (Weight of evidence) cross-validation bias

I have a task to create credit scoring model using WOE encoding. I have a very small dataset, so I wont be able to perform testing on test and out-of-time samples. Thus, I am going to use cross-...
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What is the benefit of implicit performance of a probability of default model?

I have a model which predicts a binary outcome (default/no default). The discriminatory power of the model is normally quantified with Somers' D which is the same as Gini in the binary context. $Gini ...
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Testing homogeniety within a bin of scores given max number of bins

I have a score (ranging from 0 to 1000) which predicts a binary event. The score is based on a regression. Scores are binned. There should be a maximum of $x$ (e.g. $10$) bins. Predicitions within a ...
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Calculation of the GINI coefficient,Accuracy and AUROC for credit scoring using Python code

I have the following data and I want to compute the GINI and Accuracy for model validation purposes. But I tried to calculate the GINI and Accuracy using Python code, but it seems incorrect. I would ...
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Can I use Information Value in a ML algorithm like random forest?

I have a logistic regression model used in credit scoring and I am studying the metrics used in the credit scoring field to evaluate the quality of the model. My ultimate objective is to understand if ...
Alberto Perez Martinez's user avatar
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Is probability of default an elusive concept?

Here, page 5, it is stated that probability of default is an elusive concept: Thus, the realization of the random variable "default of firm n at time t" is governed by its PD if a firm has ...
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Logistic regression for observations on a monthly grid - impact of overlapping information of a given customer

My question is based on the usual setting in credit scoring. Assume we have historical monthly observations of customers, their risk factors $R_{i,t}$ and the flag whether they are currently in ...
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Which Proper Scoring rule for when? [duplicate]

Hi, I'm quite new to statistics and have been tasked to evaluate if there is a difference in accuracy between 2 subpopulations in a logistic model. The credit scoring company's model calculates the ...
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Why is Binning, Weight of Evidence and Information Value so ubiquitous in the Credit Risk/Finance industry?

In the credit risk industry (and finance industry as a whole, at least here in the UK), there is a very common and accepted 'proper' way to build scorecards. The general framework seems to be: ...
Liam Morgan's user avatar
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How to justify to create sub-models by slice of population?

I'm in charge of a scoring project and I'm getting average results with my binary classification model. A large number of reasons could explain this, but I think one of them is the heterogeneity of ...
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Single or multiple model. How to know beforehand?

I am building a probability of default model based on behavioral information. The dataset is a loan portfolio, which contains 4 types of loans: mortgage, unsecured loans, car loans and credit cards. ...
Serge Kashlik's user avatar
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2 answers
502 views

Interpretation of Logistic Regression output in Credit Scoring

Currently I'm working on a project involving loan data where I am trying to build a model that will predict a probability of an individual defaulting on a loan. I have binary dependent variable where ...
Sandro Alavidze's user avatar
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Callibration after oversampling

We have build a credit scoring model with OptBinning library in python. In the process we oversampled the minority class and now we want to callibrate it back to ...
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How does one handle sub categories while model building?

I'm building a classification model for predicting if someone would be a loan defaulter or not. Among the other 45 features, I have two features, they represent grade assigned by the bank to the ...
Ayush Saini's user avatar
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1 answer
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Very high information value - what does it mean?

Hey I used iv function from scorecard package to calculate Information Value of my independent variables. What suprised me is ...
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Streamlining / Optimizing conditional Rules in a rule engine using ML techniques

The problem is defined as follows : We are dealing with a Rule engine used to classify a credit risk as 'Good', 'Medium' or 'bad'. Say the rule engine which has say 10 rules. These rules are ...
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Trade-off between variable stability and discriminatory model quality

It is very normal for data scientists and modeling professionals to be concerned with the stability of the model. It basically means that if a variable is important today, it cannot change its ...
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Credit risk book reference

Credit risk is a beautiful field that relies on basic notions of statistics and stochastic processes. I have been studying it, and now I am trying to understand the market models such as KMV, ...
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2 answers
9k views

How to convert coefficients of logistic regression into score values when constructing scorecard?

I have built a logistic regression model which takes a dataframe of dummy values as an input and produces binary classification (0 for accept, 1 for default). I have already split all variables into ...
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how can i plot a gini curve?

i am using a scoring metric as below: (gini) ...
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How to prove variable is ordinal

I want to run a model that determines the probability of self curing for loan customers who entered arrears. The thing is that when a customer enters arrears there are 3 ways he could go: -not cure -...
amestrian's user avatar
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What happens with the significance of binned variables?

For this project I was required to create a credit risk scorecard witht the 4 most relevant variables, so I binned all variables and selected them by chi2 and IV. I ran the logistic and linear ...
amestrian's user avatar
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1 answer
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Getting scores from PCA?

I have performed PCA in my dataset. The first 3 components explain 90% variance of the data points. Can I add these principle components to get a score? ...
Siddhi Kiran Bajracharya's user avatar
3 votes
1 answer
636 views

How does probability of default evolve over time?

Say I have a probability of default of 0.02 (which is annual so over next year) for a certain client. Then say this client takes out a 180 day loan, how can I adjust my probability of default for this ...
mathella's user avatar
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Anchor Point Calibration (Cyclicality, Central Tendency) - Probability of Default (PD) Question about assessment - Credit Risk

Let's assume we have a PD model that was calibrated with the following parameters: ...
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1 answer
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Target Score and Target Odds in Credit Scorecard development

I am working on building a Credit Scorecard model. Till now I have performed the following steps: Data preparation and cleansing Calculate WOE and IV values Model Fitting Now I working on ...
Rohan Singh Dhaka's user avatar
1 vote
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454 views

High cross validation score but low model performance on test set

I'm doing a machine learning project and need to predict a user's credit default probability. I tried some simple automated feature engineering and got a good AUC score on training set using ...
NYRAHHH's user avatar
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How to transform/convert likelihoods to scores?

I have the probability of loan default for a labeled dataset where the distribution of probabilities is heavily skewed. Labels are defined as "good/0" for no default and "bad/1" for defaults. My goal ...
Saman's user avatar
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1 vote
1 answer
105 views

To determine variables to figure out the bad customers in credit risk modeling [closed]

I am developing a probability to default model on a data from landing firm. After running the GLM() model i have got the below message: ...
SKB's user avatar
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Is the regression coefficient the same for all categories of a categorical variable?

Let's imagine I build a scorecard with a single binned variable that can only take two values. In the weight of reference framework I would replace the two possible values by their weight of evidence ...
edd's user avatar
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German credit dataset : interpretation of checking_status feature

I am struggling to understand the meaning of some features of the german credit dataset. I am particularly interested in, the categorical feature checking_status (Status of existing checking account) ...
Clement H. 's user avatar
1 vote
1 answer
182 views

What is the relationship between the risk ratio and the weight of evidence? [duplicate]

I've been reading about risk ratios as typical measures in clinical settings. In the finance and credit literature, there is the weight of evidence (WoE) measure that is used to encode and study ...
Guilherme Marthe's user avatar
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1 answer
2k views

Credit scorecard using Logistic Regression on R

I tried developing a scorecard to assess creditworthiness using the "Scorecard" package on R. The problem I encountered is when I scale the card and calculate the points for each attribute of each ...
Metrician's user avatar
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306 views

Using categories instead of WoE values

As for as I can understand, the Weight of Evidence strategy is the following: For continuous independent variables : First, create bins (categories / groups) for a continuous independent variable and ...
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Credit Scoring WoE Calculation

I'm creating credit scoring model and stuck with WoE calculation. I know the formula and I know how to compute WoE for train sample. Should I use train sample WoE for test sample or I should compute ...
Andrew's user avatar
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26 views

Using posterior variable in credit risk model

I am rebuilding a credit risk model using logistic regression (either ridge penalty or elasticnet) to predict first payment default. Historically, the company approves an applicant for a loan to ...
Shall Way's user avatar
1 vote
0 answers
571 views

How do unsupervised credit scoring models that don't consider historical financial data work?

There seems to be a number of startups (Zest Finance, Credolab etc.) that provide credit scoring schemes that rely exclusively on alternative data without considering users historical financial data ...
BGa's user avatar
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1 answer
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Hypothesis testing two sided tail test

I have a bank customer loan dataset with columns loan amount, funded amount, interest rate(high, medium, low), annual income of customer, loan status as (default and fully paid). Could I use two ...
user avatar
3 votes
1 answer
185 views

Behavioral credit scoring: problems

I would like to create a behavioral credit scoring model to score the applications for which transaction data is available. There's an obvious problem mentioned in Thomas et al. Credit Scoring and Its ...
Denis  Korzhenkov's user avatar
2 votes
0 answers
792 views

Using bayes theorem to calculate credit risk given prior knowledge and predicted probability

How can one combine: a priori knowledge of the default proability of a certain loan type based on historical data the default probability of an individual loan as predicted by a machine learning ...
Karl Märka's user avatar
1 vote
1 answer
428 views

Comparing coefficient across datasets - Cox Proportional Hazard model

I am doing a study of credit risk in europe for the period of 2006 - 2016 by using the Cox Proportional Hazard Model (time costant edition) in R (coxph). I have succesfully implemented the model for ...
Oliver Langkilde Sonne's user avatar
3 votes
0 answers
876 views

Naive Bayes vs. logistic regression [duplicate]

I'm working with credit scoring models. Here's what I know: Let Y be the binary outcome variable, $Y \in \{0,1\}$ where $Y = 1$ is the outcome of default and $X = (X_{1},...,X_{m})$ be the random ...
python_learner's user avatar
3 votes
1 answer
1k views

Optimal classifier or optimal threshold for scoring

In practice, there can be a classifier that gives far better performance at a specific acceptable threshold than an "optimal" classifier with better average performance across range of thresholds (...
toing's user avatar
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0 answers
185 views

Missing Values and Model Scoring

How do you deal with missing values when scoring a model? Can I use multiple imputation when building the model?
Herzriesig's user avatar
1 vote
1 answer
144 views

How to build Predictive models with insufficient historical/performance data

I'm building a auto loan probability of default model where the loan term could be 3 to 7 years and hence default can happen anytime in that interval. But we are a start-up and have only 3 years of ...
IamNotLegend's user avatar
2 votes
0 answers
66 views

How do loan companies set interest rate tiers?

What statistical or machine learning methods do companies like Lending Club use to segment their customer base into loan grades A1-G5? What would a reasonable partitioning method look like after ...
Test's user avatar
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1 vote
0 answers
80 views

What is the benefit of developing different scores for LGD modelling?

In the LGD Model flow presented in the figure 4.13 in the book "Developing Credit Risk Models Using SAS Enterprise Miner and SAS/STAT: Theory and Application" which is partially available on the web: ...
José Vallejo's user avatar
0 votes
1 answer
188 views

Find abnormal credit transactions based on historical data

I have a dataset of customer transactions (multiple customers,multiple transactions) and based on the historical data, I want to know when a new credit(+ve) transaction arrives if its unusual for that ...
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