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

G. Verstraeten () and Dirk Van den Poel ()

Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration

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.

Keywords: consumer credit scoring; sample bias; reject inference. (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm
Date: 2004-03
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Persistent link: http://EconPapers.repec.org/RePEc:rug:rugwps:04/232

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