PT  - JOURNAL ARTICLE
AU  - Anand K. Ramteke
AU  - Pavan Wadhwa
AU  - Monica Yan
TI  - Interpretability of Machine Learning versus Statistical Credit Risk Models
AID  - 10.3905/jfds.2022.1.089
DP  - 2022 Apr 30
TA  - The Journal of Financial Data Science
PG  - 111--124
VI  - 4
IP  - 2
4099  - https://pm-research.com/content/4/2/111.short
4100  - https://pm-research.com/content/4/2/111.full
AB  - Model interpretability is important in the banking industry for three reasons: certain US regulations require creditors to provide consumers with the reasons for taking adverse action (reason codes) on their credit applications; model users want to understand the reasoning behind model predictions; and identification of bias and reinforcement of stakeholders’ trust in the model. In this article, the authors compare the interpretability of an XGBoost versus a logistic model in predicting the probability of default for a credit card customer. They conclude that (1) the reason codes of an XGBoost model and a comparable logistic model are similar, (2) reason codes generated by XGBoost are more trustworthy from the customer’s perspective, and (3) nonlinearity of XGBoost is unlikely to have a significant impact on reason code(s).