A trust-based bio-inspired approach for credit lending decisions

Abstract

Credit scoring computation essentially involves taking into account various financial factors and the previous behavior of the credit requesting person. There is a strong degree of correlation between the compliance level and the credit score of a given entity. The concept of trust has been widely used and applied in the existing literature to determine the compliance level of an entity. However it has not been studied in the context of credit scoring literature. In order to address this shortcoming, in this paper we propose a six-step bio-inspired methodology for trust-based credit lending decisions by credit institutions. The proposed methodology makes use of an artificial neural network-based model to classify the (potential) customers into various categories. To show the applicability and superiority of the proposed algorithm, it is applied to a credit-card dataset obtained from the UCI repository. Due to the varying spectrum of trust levels, we are able to solve the problem of binary credit lending decisions. A trust-based credit scoring approach allows the financial institutions to grant credit-based on the level of trust in potential customers.