marwenhmidi/credit-scoring-model

Credit scoring machine learning algorithm which predicts probability of default

Probability of default: credit scoring model

This model uses a Kaggle dataset containing data about credit repayment difficulty rates among customers.

Kaggle description:

Improve on the state of the art in credit scoring by predicting the probability that somebody will experience financial distress in the next two years.

Banks play a crucial role in market economies. They decide who can get finance and on what terms and can make or break investment decisions. For markets and society to function, individuals and companies need access to credit.

Credit scoring algorithms, which make a guess at the probability of default, are the method banks use to determine whether or not a loan should be granted. This competition requires participants to improve on the state of the art in credit scoring, by predicting the probability that somebody will experience financial distress in the next two years.

The goal of this competition is to build a model that borrowers can use to help make the best financial decisions. Historical data are provided on 250,000 borrowers.

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The variables are the following: SeriousDlqin2yrs Person experienced 90 days past due delinquency or worse (Target variable / label)

RevolvingUtilizationOfUnsecuredLines: Total balance on credit cards and personal lines of credit except real estate and no installment debt like car loans divided by the sum of credit limits

age Age of borrower in years

NumberOfTime30-59DaysPastDueNotWorse: Number of times borrower has been 30-59 days past due but no worse in the last 2 years.

DebtRatio: Monthly debt payments, alimony,living costs divided by monthy gross income

MonthlyIncome: Monthly income

NumberOfOpenCreditLinesAndLoans: Number of Open loans (installment like car loan or mortgage) and Lines of credit (e.g. credit cards)

NumberOfTimes90DaysLate: Number of times borrower has been 90 days or more past due.

NumberRealEstateLoansOrLines: Number of mortgage and real estate loans including home equity lines of credit

NumberOfTime60-89DaysPastDueNotWorse: Number of times borrower has been 60-89 days past due but no worse in the last 2 years.

NumberOfDependents: Number of dependents in family excluding themselves (spouse, children etc.)

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We will be using a random forest classifier for two reasons: firstly, because it would allow us to quickly and easily change the output to a simple binary classification problem. Secondly, because the predict_proba functionality allows us to output a probability score (probability of 1), this score is what we will use for predicting the probability of 90 days past due delinquency or worse in 2 years time.

Furthermore, we will predominantly be adopting a quantiles based approach in order to streamline the process as much as possible so that hypothetical credit checks can be returned as easily and as quickly as possible.

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This model lead to an accuracy rate of 0.800498 on Kaggle's unseen test data.

I deem this accuracy rate to be acceptable given that we used a relatively simple quantile based approach and in light of the fact that no parameter optimization was undertaken.