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Shallow Self-Learning for Reject Inference in Credit Scoring

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Listed:
  • Nikita Kozodoi
  • Panagiotis Katsas
  • Stefan Lessmann
  • Luis Moreira-Matias
  • Konstantinos Papakonstantinou

Abstract

Credit scoring models support loan approval decisions in the financial services industry. Lenders train these models on data from previously granted credit applications, where the borrowers' repayment behavior has been observed. This approach creates sample bias. The scoring model (i.e., classifier) is trained on accepted cases only. Applying the resulting model to screen credit applications from the population of all borrowers degrades model performance. Reject inference comprises techniques to overcome sampling bias through assigning labels to rejected cases. The paper makes two contributions. First, we propose a self-learning framework for reject inference. The framework is geared toward real-world credit scoring requirements through considering distinct training regimes for iterative labeling and model training. Second, we introduce a new measure to assess the effectiveness of reject inference strategies. Our measure leverages domain knowledge to avoid artificial labeling of rejected cases during strategy evaluation. We demonstrate this approach to offer a robust and operational assessment of reject inference strategies. Experiments on a real-world credit scoring data set confirm the superiority of the adjusted self-learning framework over regular self-learning and previous reject inference strategies. We also find strong evidence in favor of the proposed evaluation measure assessing reject inference strategies more reliably, raising the performance of the eventual credit scoring model.

Suggested Citation

  • Nikita Kozodoi & Panagiotis Katsas & Stefan Lessmann & Luis Moreira-Matias & Konstantinos Papakonstantinou, 2019. "Shallow Self-Learning for Reject Inference in Credit Scoring," Papers 1909.06108, arXiv.org.
  • Handle: RePEc:arx:papers:1909.06108
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    References listed on IDEAS

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    1. J Banasik & J Crook, 2005. "Credit scoring, augmentation and lean models," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 56(9), pages 1072-1081, September.
    2. J Banasik & J Crook & L Thomas, 2003. "Sample selection bias in credit scoring models," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 54(8), pages 822-832, August.
    3. J Banasik & J Crook, 2010. "Reject inference in survival analysis by augmentation," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 61(3), pages 473-485, March.
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    Cited by:

    1. Mengnan Song & Jiasong Wang & Suisui Su, 2022. "Towards a Better Microcredit Decision," Papers 2209.07574, arXiv.org.
    2. Monir El Annas & Badreddine Benyacoub & Mohamed Ouzineb, 2023. "Semi-supervised adapted HMMs for P2P credit scoring systems with reject inference," Computational Statistics, Springer, vol. 38(1), pages 149-169, March.

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