Sample Selection Bias in Acquisition Credit Scoring Models: An Evaluation of the Supplemental-Data Approach

Journal of Credit Risk, (9.3 - 2013)

43 Pages Posted: 9 Dec 2010 Last revised: 16 Jul 2014

See all articles by Irina Barakova

Irina Barakova

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Dennis Glennon

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Ajay A. Palvia

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Date Written: April 1, 2013

Abstract

Models evaluating credit applicants rely on payment performance data, which is only available for accepted applicants. This sampling limitation could lead to biased parameter estimates. We use a nationally representative sample of credit bureau records to examine sample selection bias in account acquisition scoring models and to evaluate the effectiveness of the industry practice of using proxy payment performance for rejected applicants. Our results show that ignoring the rejected applicants significantly affects forecast accuracy of credit scores while it has little effect on their discriminatory power. Finally, we document that validating scores only on accepted applicants can be misleading.

Keywords: credit scoring, sample selection bias, reject inference, validation

Suggested Citation

Barakova, Irina and Glennon, Dennis and Palvia, Ajay A., Sample Selection Bias in Acquisition Credit Scoring Models: An Evaluation of the Supplemental-Data Approach (April 1, 2013). Journal of Credit Risk, (9.3 - 2013). Available at SSRN: https://ssrn.com/abstract=1722382 or http://dx.doi.org/10.2139/ssrn.1722382

Irina Barakova (Contact Author)

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
United States

Dennis Glennon

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

250 E Street, SW
Senior Financial Economist; Economics Department
Washington, DC 20219-0001
United States
202-874-4725 (Phone)
202-874-5394 (Fax)

Ajay A. Palvia

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
United States

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