Application of Machine Learning in Credit Risk Assessment: A Prelude to Smart Banking

A precise credit risk assessment system is always vital to any financial institution for impeccable and gainful functioning. In such an ever-changing economy as the rate of loan defaults are gradually increasing, authorities of financial institutions are finding it more and more difficult to correctly assess loan requests and tackle the risks of loan defaulters. In light of these events this paper proposes a machine learning model which can precisely assess credit risk and predict possible loan defaulters for credit lending institutions. A comparative analysis has been made using tuned supervised learning algorithms such as Support Vector Machine, Random Forest, Extreme Gradient Boosting and Logistic Regression for identifying defaulters. Recursive Feature Elimination with Cross-Validation and Principal Component Analysis have been…