Advances in Consumer Research
Issue 4 : 5635-5639
Original Article
Application of Machine Learning in Credit Risk Modeling and Default Prediction
 ,
 ,
1
Assistant Professor, Vivekananda Institute of management studies
2
Professor,Vivekananda Institute of management studies
3
Visiting Faculty, Delhi Skill and Entrepreneurship University
Abstract

This paper analyses how machine learning methods can be used to optimize credit risk modeling and default prediction in financial institutions. The first one is to overcome the weakness of conventional statistical credit rating models to capture nonlinearities and high-dimensional borrower data. The research design of the study is the quantitative research design based on supervised machine learning models, such as logistic regression, random forest, support vector machines, and gradient boosting techniques applied to financial and behavioral variables of borrowers on an individual basis. Accuracy, Area Under the Curve (AUC ), precision, recall, and default classification error rates are used to measure performance using the model. Findings show that the ensemble-based models are better than the traditional models, and the gradient boosting has an AUC of 0.89 versus 0.74 with logistic regression, as well as a decrease in the percentage of the misclassification by a factor of about 21. The analysis of the feature importance shows that the debt-to-income ratio, payment history, and credit utilization are the main predictors of default. The results indicate that machine learning models have a great role to play in predictive accuracy and risk discrimination. It is found that machine learning can be effectively applied to the credit risk frameworks to reduce the default risks, optimize lending processes, and ensure financial stability when accompanied by proper governance and a model risk management practice..

Keywords
Recommended Articles
Original Article
“Entrepreneurship Development Training and Enterprise Success: The Mediating Role of Entrepreneurial Competencies among RUDSETI Beneficiaries”
Original Article
“Digital Microfinance and Women's Economic Empowerment: An Empirical Study among Women Entrepreneurs in Karnataka”
Original Article
Role of Customers' Perception of Retail Formats in the Formation of Customer Satisfaction: An Empirical Study of Supermarkets in Delhi NCR.
...
Original Article
Impact of Blockchain Based After Sales Service and Battery Traceability on Customer Satisfaction in the Two Wheeler Electric Vehicle Market: Evidence from Bangalore City
Loading Image...
Volume 2, Issue 4
Citations
1096 Views
346 Downloads
Share this article
© Copyright Advances in Consumer Research