Risky Business

Background

Mortgages, student and auto loans, and debt consolidation are just a few examples of credit and loans that people seek online. Peer-to-peer lending services such as Loans Canada and Mogo let investors loan people money without using a bank. However, because investors always want to mitigate risk, it would be helpful to predict credit risk with machine learning techniques.

In this repo I have built and evaluated several machine learning models to predict credit risk using data you'd typically see from peer-to-peer lending services. Credit risk is an inherently imbalanced classification problem (the number of good loans is much larger than the number of at-risk loans), so you will need to employ different techniques for training and evaluating models with imbalanced classes. I have used the two following techniques to build and evaluate models using imbalanced-learn and Scikit-learn libraries:

1. Resampling
2. Ensemble Learning

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Instructions

Resampling

Using the imbalanced learn library, I resampled the LendingClub data to build and evaluate logistic regression classifiers using the resampled data.

Steps taken:

1. Oversample the data using the Naive Random Oversampler and SMOTE algorithms.

2. Undersample the data using the Cluster Centroids algorithm.

3. Over- and undersample using a combination SMOTEENN algorithm.

Further steps:

1. Train a logistic regression classifier from sklearn.linear_model using the resampled data.

2. Calculate the balanced accuracy score from sklearn.metrics.

3. Calculate the confusion matrix from sklearn.metrics.

4. Print the imbalanced classification report from imblearn.metrics.

Questions

• Which model had the best balanced accuracy score?

The SMOTEEN model has the best balanced accuracy score because it is closest to 1.0

• Which model had the best recall score?

Each model has a consistent total recall score of 0.99; a score above 0.50 is considered a good score.

• Which model had the best geometric mean score?

The Naive Random Oversampling, SMOTE Oversampling, and the Combination (Over and Under) Sampling all produced the highest geometric mean score of 0.99

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Ensemble Learning

In this section, you will train and compare two different ensemble classifiers to predict loan risk and evaluate each model. You will use the Balanced Random Forest Classifier and the Easy Ensemble Classifier. Refer to the documentation for each of these to read about the models and see examples of the code.

Complete the following steps for each model:

1. Train the model using the quarterly data from LendingClub provided in the Resource folder.

2. Calculate the balanced accuracy score from sklearn.metrics.

3. Print the confusion matrix from sklearn.metrics.

4. Generate a classification report using the imbalanced_classification_report from imbalanced learn.

5. For the balanced random forest classifier only, print the feature importance sorted in descending order (most important feature to least important) along with the feature score.

Questions

• Which model had the best balanced accuracy score?

the Easy Ensemble Classifier has the best balanced accuracy score as it is closer to 1.0

• Which model had the best recall score?

both models have a recall score of 0.99

• Which model had the best geometric mean score?

both models have a geometric mean score of 0.99

• What are the top three features?

the top three features are interest rate, borrower income, and debt to income

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Hints and Considerations

Use the quarterly data from the LendingClub data provided in the Resources folder. Keep the file in the zipped format and use the starter code to read the file.

Refer to the imbalanced-learn and scikit-learn official documentation for help with training the models. Remember that these models all use the model->fit->predict API.

For the ensemble learners, use 100 estimators for both models.