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Predicting Credit Card Approvals
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  • 1. Credit card applications

    Commercial banks receive a lot of applications for credit cards. Many of them get rejected for many reasons, like high loan balances, low income levels, or too many inquiries on an individual's credit report, for example. Manually analyzing these applications is mundane, error-prone, and time-consuming (and time is money!). Luckily, this task can be automated with the power of machine learning and pretty much every commercial bank does so nowadays. In this notebook, we will build an automatic credit card approval predictor using machine learning techniques, just like the real banks do.

    Credit card being held in hand

    We'll use the Credit Card Approval dataset from the UCI Machine Learning Repository. The structure of this notebook is as follows:

    • First, we will start off by loading and viewing the dataset.
    • We will see that the dataset has a mixture of both numerical and non-numerical features, that it contains values from different ranges, plus that it contains a number of missing entries.
    • We will have to preprocess the dataset to ensure the machine learning model we choose can make good predictions.
    • After our data is in good shape, we will do some exploratory data analysis to build our intuitions.
    • Finally, we will build a machine learning model that can predict if an individual's application for a credit card will be accepted.

    First, loading and viewing the dataset. We find that since this data is confidential, the contributor of the dataset has anonymized the feature names.

    # Import pandas
    import pandas as pd
    
    # Load dataset
    cc_apps = pd.read_csv("datasets/cc_approvals.data", header = None)
    
    # Inspect data
    print(cc_apps.head())

    2. Inspecting the applications

    The output may appear a bit confusing at its first sight, but let's try to figure out the most important features of a credit card application. The features of this dataset have been anonymized to protect the privacy, but this blog gives us a pretty good overview of the probable features. The probable features in a typical credit card application are Gender, Age, Debt, Married, BankCustomer, EducationLevel, Ethnicity, YearsEmployed, PriorDefault, Employed, CreditScore, DriversLicense, Citizen, ZipCode, Income and finally the ApprovalStatus. This gives us a pretty good starting point, and we can map these features with respect to the columns in the output.

    As we can see from our first glance at the data, the dataset has a mixture of numerical and non-numerical features. This can be fixed with some preprocessing, but before we do that, let's learn about the dataset a bit more to see if there are other dataset issues that need to be fixed.

    # Print summary statistics
    cc_apps_description = cc_apps.describe()
    print(cc_apps_description)
    
    print("\n")
    
    # Print DataFrame information
    cc_apps_info = cc_apps.info()
    print(cc_apps_info)
    
    print("\n")
    
    # Inspect missing values in the dataset
    print(cc_apps.tail(17))

    3. Handling the missing values (part i)

    We've uncovered some issues that will affect the performance of our machine learning model(s) if they go unchanged:

    • Our dataset contains both numeric and non-numeric data (specifically data that are of float64, int64 and object types). Specifically, the features 2, 7, 10 and 14 contain numeric values (of types float64, float64, int64 and int64 respectively) and all the other features contain non-numeric values.
    • The dataset also contains values from several ranges. Some features have a value range of 0 - 28, some have a range of 2 - 67, and some have a range of 1017 - 100000. Apart from these, we can get useful statistical information (like mean, max, and min) about the features that have numerical values.
    • Finally, the dataset has missing values, which we'll take care of in this task. The missing values in the dataset are labeled with '?', which can be seen in the last cell's output.

    Now, let's temporarily replace these missing value question marks with NaN.

    # Import numpy
    import numpy as np
    
    # Inspect missing values in the dataset
    print(cc_apps.tail(17))
    
    # Replace the '?'s with NaN
    cc_apps = cc_apps.replace('?', np.nan)
    
    # Inspect the missing values again
    print(cc_apps.tail(17))

    4. Handling the missing values (part ii)

    We replaced all the question marks with NaNs. This is going to help us in the next missing value treatment that we are going to perform.

    An important question that gets raised here is why are we giving so much importance to missing values? Can't they be just ignored? Ignoring missing values can affect the performance of a machine learning model heavily. While ignoring the missing values our machine learning model may miss out on information about the dataset that may be useful for its training. Then, there are many models which cannot handle missing values implicitly such as LDA.

    So, to avoid this problem, we are going to impute the missing values with a strategy called mean imputation.

    # Impute the missing values with mean imputation
    cc_apps.fillna(cc_apps.mean(), inplace=True)
    
    # Count the number of NaNs in the dataset to verify
    cc_apps.isnull().sum()

    5. Handling the missing values (part iii)

    We have successfully taken care of the missing values present in the numeric columns. There are still some missing values to be imputed for columns 0, 1, 3, 4, 5, 6 and 13. All of these columns contain non-numeric data and this why the mean imputation strategy would not work here. This needs a different treatment.

    We are going to impute these missing values with the most frequent values as present in the respective columns. This is good practice when it comes to imputing missing values for categorical data in general.

    # Iterate over each column of cc_apps
    for col in cc_apps.columns:
        # Check if the column is of object type
        if cc_apps[col].dtype == 'object':
            # Impute with the most frequent value
            cc_apps = cc_apps.fillna(cc_apps[col].value_counts().index[0])
    
    # Count the number of NaNs in the dataset and print the counts to verify
    cc_apps.isnull().sum()

    6. Preprocessing the data (part i)

    The missing values are now successfully handled.

    There is still some minor but essential data preprocessing needed before we proceed towards building our machine learning model. We are going to divide these remaining preprocessing steps into three main tasks:

    1. Convert the non-numeric data into numeric.
    2. Split the data into train and test sets.
    3. Scale the feature values to a uniform range.

    First, we will be converting all the non-numeric values into numeric ones. We do this because not only it results in a faster computation but also many machine learning models (like XGBoost) (and especially the ones developed using scikit-learn) require the data to be in a strictly numeric format. We will do this by using a technique called label encoding.

    # Import LabelEncoder
    from sklearn.preprocessing import LabelEncoder
    
    # Instantiate LabelEncoder
    le = LabelEncoder()
    
    # Iterate over all the values of each column and extract their dtypes
    for col in cc_apps.columns.to_numpy():
        # Compare if the dtype is object
        if cc_apps[col].dtype=='object':
        # Use LabelEncoder to do the numeric transformation
            cc_apps[col]=le.fit_transform(cc_apps[col])

    7. Splitting the dataset into train and test sets

    We have successfully converted all the non-numeric values to numeric ones.

    Now, we will split our data into train set and test set to prepare our data for two different phases of machine learning modeling: training and testing. Ideally, no information from the test data should be used to scale the training data or should be used to direct the training process of a machine learning model. Hence, we first split the data and then apply the scaling.

    Also, features like DriversLicense and ZipCode are not as important as the other features in the dataset for predicting credit card approvals. We should drop them to design our machine learning model with the best set of features. In Data Science literature, this is often referred to as feature selection.

    # Import train_test_split
    from sklearn.model_selection import train_test_split
    
    # Drop the features 11 and 13 and convert the DataFrame to a NumPy array
    cc_apps = cc_apps.drop([11, 13], axis=1)
    cc_apps = cc_apps.to_numpy()
    
    # Segregate features and labels into separate variables
    X,y = cc_apps[:,0:13] , cc_apps[:,13]
    
    # Split into train and test sets
    X_train, X_test, y_train, y_test = train_test_split(X,
                                    y,
                                    test_size=0.33,
                                    random_state=42)

    8. Preprocessing the data (part ii)

    The data is now split into two separate sets - train and test sets respectively. We are only left with one final preprocessing step of scaling before we can fit a machine learning model to the data.

    Now, let's try to understand what these scaled values mean in the real world. Let's use CreditScore as an example. The credit score of a person is their creditworthiness based on their credit history. The higher this number, the more financially trustworthy a person is considered to be. So, a CreditScore of 1 is the highest since we're rescaling all the values to the range of 0-1.