=1
. .t s
c w a
i
n
j
j ij
> +
=
o
1
, G i e
9
c w a
i
n
j
j ij
s
=
o
1
, B i e
c w
i
, unrestricted in sign and 0 >
i
o
Where:
-
i
o is the overlapping of two classes boundary for all alternatives score
i
A form the cut of
point, i.e. the violation of the classification rules by an alternative
i
X .
- C is the cut point which discriminates between good and bad alternatives
-
j
w are the weigh of the attribute j
5. Implementation and conclusion
5.1. I mplementation
To build and test the credit score models using CRIS, Bayesian, and linear
programming a sample consisting of 200 customers was selected randomly (100 bad and 100
good), these customers granted a credit card based on deductive credit score. The
classification of customers to good and bad depends on the number of months of missed
payment. If the customer delays more than 6 months, that customer are classified as bad,
otherwise the customer is classified as good.
This sample is divided equally into two samples. The first sample consist of 100
customers (50 good and 50 bad), used to build the model, this sample is called the training
sample. The second sample consist of 100 customers (50 good and 50 bad), used to test the
model, this sample is called test sample. The credit score models will be built using the same
attributes used in the current deductive credit score system.
We used the training sample to build the credit score models and test sample to test the
models. The models were built using composite rule induction system, Bayesian classification,
Freed and Glover (1986) model and MSD model. The results are given in the following, for
training and test samples:
- CRIS is good to give an overview of the sample since the procedure used to arrive to the
rules can be understood by the user but if the CRIS is used, it is important to perform
further analysis because the decision may depend on one rule. If this rule is satisfied, then
the applicant will be ranked to the class that the rule defines without examining other rules.
- Using Bayesian and MSD model will decrease the insolvent rate since both models are
successes to detect bad customers and classify them correctly as bad while the deductive
credit score classify them as good, at the same time part of good customers may be loss.
The comparison between Bayesian (Bayesian1) and MSD (MSD1), for test sample, is
summarized in table 3:
Estimated classes for test sample
Original
classes
Good Bad
MSD1 Bayesian1 MSD1 Bayesian1
Good 56% 68% 44% 32%
Bad 32% 40% 68% 60%
Table 3: The comparison between Bayesian and MSD models
11
- Thus using Bayesian1 or MSD1 model will reduce the insolvent rate but some good
customers will be denied. Generally Bayesian1 and MSD1 models give insufficient results
since they classify some good customers as bad and can not detect all bad customers.
- Insufficient results due to there is a need to review the attributes which are used to build the
models since these attributes do not reflect all data about the customers and some of these
attributes are vague. The set of attributes should comprise more relevant data and more
details.
We will try to improve the accuracy of credit score model by removing vague
attributes and adding useful attributes. Due to lake of data, the income will be added to the set
of attributes which are used to build the credit score models and the gender, home own type,
bank account, and credit card will be removed, since it reqires more details and do not provide
useful information.
The attributes which will be used to build the new credit score models are age, martial
status (single, divorced, widow, and married), education level (diploma, graduated, and post
graduated), occupation (self employee, employee), experience, home years (how many years
the customer stay in the current address), and income. The new Bayesian and MSD models
will be called Bayesian2 and MSD2.
The result of applying new model for test sample is given in table 4:
Estimated classes for test sample
New models
Original
classes
Good Bad
MSD2 Bayesian2 MSD2 Bayesian2
Good 86% 66% 14% 34%
Bad 28% 44% 72% 56%
Table 4: The comparison between Bayesian and MSD models
The performances of Bayesian1, MSD1, Bayesian2 and MSD2 are compared and show
that MSD2 is the best as follows:
- According to rate of good customers which were classified correctly, the methods are
arranged and given in table 5:
Table 5: Methods arranged according rate of good
customers which classified correctly
Model Good
MSD2 86%
Bayesian1 68%
Bayesian2 66%
MSD1 56%
11
- According to rate of bad customers which were classified correctly, the methods can be
arranged and given in table 6.
Table 6: Methods arranged according rate of bad
customers which classified correctly
- From table 5 and 6 MSD2 model performs better than other models. According to rate of
good customers which were classified correctly, MSD2 classify 86% of customers correctly
then Bayesian1 68%, then Bayesian2 66% and MSD1 56%. According to rate of bad
customers which classified correctly, MSD2 72% of customers correctly then MSD1 68%,
then Bayesian1 60% and Bayesian2 56%.
It is clear that MSD after adding income attributes and removing vague attributes
performs better than others models.
5.2. Conclusions
Credit cards are a fast growing business segment and have become the most accepted,
convenient, and profitable financial products. These types of credit make up an important part
of bank revenues and any error in the credit decision for a single customer means that the
banks will lose the profit obtained from other successful customers so banks must give more
attention in credit decision for this type of credit.
Credit score is used to support banks to estimate whether to issue a credit card to new
applicant or not. It gives quick, objective, more accurate and consistent credit decisions.
Recently some banks in Egypt start to use deductive credit score for credit card.
Deductive credit score gives consistent decision but imprecise decision because it is still
depends on experience.
We develop an empirical credit score using Composite Rule Induction System (CRIS),
Bayesian classification, and linear programming in order to improve the accuracy on credit
decision. We develop these models using the data obtained from system depending on
deductive credit score. We find that MSD2 model; linear programming model after adding
income attributes and removing vague attributes, performs better than others models.
We conclude that deductive scoring system is not sufficient to make credit decision
and using empirical scoring system can screen more risky customers than deductive scoring
system. Also we recommend reviewing the attributes used to build the models (deductive and
empirical) so its important to review the questions in a credit card application to obtain more
information and help in building the models.
Model Bad
MSD2 72%
MSD1 68%
Bayesian1 60%
Bayesian2 56%
12
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