Article ID: | iaor20062720 |
Country: | United Kingdom |
Volume: | 56 |
Issue: | 8 |
Start Page Number: | 981 |
End Page Number: | 992 |
Publication Date: | Aug 2005 |
Journal: | Journal of the Operational Research Society |
Authors: | Poel D. van den, Verstraeten G. |
Keywords: | credit scoring |
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 – to a lesser extent – 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.