Multi-Layer Hybrid Credit Scoring Model Based on Feature Selection, Ensemble Learning, and Ensemble Classifier

Abstract

Credit scoring is a process to calculate the risk associated with a credit product, and it directly affects the profitability of that industry. Periodically, financial institutions apply credit scoring in various steps. The main focus of this study is to improve the predictive performance of the credit scoring model. To improve the predictive performance of the model, this study proposes a multi-layer hybrid credit scoring model. The first stage concerns pre-processing, which includes treatment for missing values, data-transformation, and reduction of irrelevant and noisy features because they may affect predictive performance of model. The second stage applies various ensemble learning approaches such as Bagging, Adaboost, etc. At the last layer, it applies ensemble classifiers approach, which combines three heterogeneous classifiers, namely: random forest (RF), logistic regression (LR), and sequential minimal optimization (SMO) approaches for classification. Further, the proposed multi-layer model is validated on various real-world credit scoring datasets.