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The Impact of Sample Bias on Consumer Credit Scoring Performance and Profitability

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  • G. VERSTRAETEN
  • D. VAN DEN POEL

Abstract

This article seeks to gain insight into the influence of sample bias in a consumer credit scoring model. In earlier research, sample bias has been suggested to pose a sizeable threat to predictive performance and profitability due to its implications on either population drainage or biased estimates. Contrary to previous – mainly theoretical – research on sample bias, the unique features of the dataset used in this study provide the opportunity to investigate the issue in an empirical setting. Based on the data of a mail-order company offering short term consumer credit to their consumers, we show that (i) given a certain sample size, sample bias has a significant effect on consumer credit-scoring performance and profitability, (ii) its effect is composed of the inclusion of rejected orders in the scoring model, and the inclusion of these orders into the variable-selection process, and (iii) the impact of the effect of sample bias on consumer credit scoring performance and profitability is modest.

Suggested Citation

  • G. Verstraeten & D. Van Den Poel, 2004. "The Impact of Sample Bias on Consumer Credit Scoring Performance and Profitability," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 04/232, Ghent University, Faculty of Economics and Business Administration.
    • Handle: RePEc:rug:rugwps:04/232
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    1. B Baesens & T Van Gestel & S Viaene & M Stepanova & J Suykens & J Vanthienen, 2003. "Benchmarking state-of-the-art classification algorithms for credit scoring," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 54(6), pages 627-635, June.
    2. Desai, Vijay S. & Crook, Jonathan N. & Overstreet, George A., 1996. "A comparison of neural networks and linear scoring models in the credit union environment," European Journal of Operational Research, Elsevier, vol. 95(1), pages 24-37, November.
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    5. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    6. Eric Rosenberg & Alan Gleit, 1994. "Quantitative Methods in Credit Management: A Survey," Operations Research, INFORMS, vol. 42(4), pages 589-613, August.
    7. 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.
    8. Thomas, L.C. & Ho, J. & Scherer, W.T., 2001. "Time will tell: Behavioural Scoring and the Dynamics of Consumer Credit Assessment," Papers 01-174, University of Southampton - Department of Accounting and Management Science.
    9. Thomas, Lyn C., 2000. "A survey of credit and behavioural scoring: forecasting financial risk of lending to consumers," International Journal of Forecasting, Elsevier, vol. 16(2), pages 149-172.
    10. Baesens, Bart & Viaene, Stijn & Van den Poel, Dirk & Vanthienen, Jan & Dedene, Guido, 2002. "Bayesian neural network learning for repeat purchase modelling in direct marketing," European Journal of Operational Research, Elsevier, vol. 138(1), pages 191-211, April.
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    Cited by:

    1. Hussein A. Abdou & John Pointon, 2011. "Credit Scoring, Statistical Techniques And Evaluation Criteria: A Review Of The Literature," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 18(2-3), pages 59-88, April.
    2. Crone, Sven F. & Finlay, Steven, 2012. "Instance sampling in credit scoring: An empirical study of sample size and balancing," International Journal of Forecasting, Elsevier, vol. 28(1), pages 224-238.
    3. Rogelio A. Mancisidor & Michael Kampffmeyer & Kjersti Aas & Robert Jenssen, 2019. "Deep Generative Models for Reject Inference in Credit Scoring," Papers 1904.11376, arXiv.org, revised Sep 2021.
    4. Hand, David J. & Crowder, Martin J., 2012. "Overcoming selectivity bias in evaluating new fraud detection systems for revolving credit operations," International Journal of Forecasting, Elsevier, vol. 28(1), pages 216-223.
    5. Y Kim & S Y Sohn, 2007. "Technology scoring model considering rejected applicants and effect of reject inference," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 58(10), pages 1341-1347, October.
    6. Gero Szepannek, 2022. "An Overview on the Landscape of R Packages for Open Source Scorecard Modelling," Risks, MDPI, vol. 10(3), pages 1-33, March.
    7. Karol Przanowski, 2014. "Credit acceptance process strategy case studies - the power of Credit Scoring," Papers 1403.6531, arXiv.org.

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    Keywords

    consumer credit scoring; sample bias; reject inference.;
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