A Machine Learning Workflow to Address Credit Default Prediction

Rambod Rahmani, Marco Parola, Mario G. C. A. Cimino

Abstract: Due to the recent increase in interest in Financial Technology (FinTech), applications like credit default prediction (CDP) are gaining significant industrial and academic attention. In this regard, CDP plays a crucial role in assessing the creditworthiness of individuals and businesses, enabling lenders to make informed deci-sions regarding loan approvals and risk management. In this paper, we propose a workflow-based approach to improve CDP, which refers to the task of assessing the probability that a borrower will default on his or her credit obligations. The workflow consists of multiple steps, each designed to leverage the strengths of different techniques featured in machine learning pipelines and, thus best solve the CDP task. We employ a comprehensive and systematic approach starting with data preprocessing using Weight of Evidence encoding, a technique that ensures in a single-shot data scaling by removing outliers, handling missing values, and making data uniform for models