Hybrid mining approach in the design of credit scoring models

Unrepresentative data samples are likely to reduce the utility of data classifiers in practical application. This study presents a hybrid mining approach in the design of an effective credit scoring model, based on clustering and neural network techniques. We used clustering techniques to preprocess the input samples with the objective of indicating unrepresentative samples into isolated and inconsistent clusters, and used neural networks to construct the credit scoring model. The clustering stage involved a class-wise classification process. A self-organizing map clustering algorithm was used to automatically determine the number of clusters and the starting points of each cluster. Then, the K-means clustering algorithm was used to generate clusters of samples belonging to new classes and eliminate the unrepresentative samples from each class. In the neural network stage, samples with new class labels were used in the design of the credit scoring model. The proposed method demonstrates by two real world credit data sets that the hybrid mining approach can be used to build effective credit scoring models. q 2005 Elsevier Ltd. All rights reserved.