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Published on: October 23, 2020
A logistic regression model for consumer default risk
Eliana Costa E Silva1, Isabel Cristina Lopes2, Aldina Correia1
1CIICESI, ESTG, Politécnico do Porto, Felgueiras, Portugal.
Abstract:
In this study, a logistic regression model is applied to credit scoring data from a given Portuguese financial institution to evaluate the default risk of consumer loans. It was found that the risk of default increases with the loan spread, loan term and age of the customer, but decreases if the customer owns more credit cards. Clients receiving the salary in the same banking institution of the loan have less chances of default than clients receiving their salary in another institution. We also found that clients in the lowest income tax echelon have more propensity to default. The model predicted default correctly in 89.79% of the cases.
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