Assessing Loan Risks: A Data Mining Case Study

Imagine what it would mean to your marketing clients if you could predict how their customers would respond to a promotion, or if your financial clients could predict which applicants would repay their loans. Data mining has come out of the research lab and into the real world to do just such tasks. Defined as “the nontrivial process of identifying valid, novel, potentially useful, and ultimately understandable patterns in data” (Advances in Knowledge Discovery and Data Mining,U.M.Fayyad et al., eds., MIT Press, Cambridge, Mass., 1996), data mining frequently uncovers patterns that predict future behavior. It is proving useful in diverse industries like banking, telecommunications, retail, marketing, and insurance. Basic data mining techniques and models also proved useful in a project for the US Department of Agriculture.