Instance Selection and Optimization of Neural Networks

Credit scoring is an important tool in financial institutions, which can be used in credit granting decision. Credit applications are marked by credit scoring models and those with high marks will be treated as “good”, while those with low marks will be regarded as “bad”. As data mining technique develops, automatic credit scoring systems are warmly welcomed for their high efficiency and objective judgments. Many machine learning algorithms have been applied in training credit scoring models, and ANN is one of them with good performance. This paper presents a higher accuracy credit scoring model based on MLP neural networks trained with back propagation algorithm. Our work focuses on enhancing credit scoring models in three aspects: optimize data distribution in datasets using a new method called Average Random Choosing; compare effects of training-validation-test instances numbers; and find the most suitable number of hidden units. Another contribution of this paper is summarizing the tendency of scoring accuracy of models when the number of hidden units increases. The experiment results show that our methods can achieve high credit scoring accuracy with imbalanced datasets. Thus, credit granting decision can be made by data mining methods using MLP neural networks. Keywords— Back propagation; credit scoring; multilayer perceptron; neural network