YOUR BOSS WANTS TO KNOW:

How does the PROBABILITY of credit card DEFAULT depend on the level of EDUCATION of the customer and the CREDIT LIMIT offered to the customer?

YOUR BOSS WANTS TO KNOW the inter-relationship betweeen:

CREDIT LIMIT – Internal Decision made by her &

EDUCATION – External Consumer Demographic Factor

YOUR BOSS WANTS TO KNOW:

(A) How much does the PROBABILITY of credit card default change, if the CREDIT LIMIT of customers without college education (i.e. Education = '1'), is raised by $10,000?

YOUR BOSS WANTS TO KNOW:

(B) How much does the PROBABILITY of credit card default change, if the CREDIT LIMIT of customers having a bachelor's degree (i.e. Education = '2'), is raised by $10,000?

Part 1: Exploratory Data Analysis (EDA)

EDA

The Following Links Summarize and Visualize the Data

Summary Statistics

Visualizing Data

Part 2: Data Prepration For Machine Learning

• Data Prepration

Proportion of Defaulters in Raw Data

# Proportion of defaulters
round(prop.table(table(dt$Default))*100,2)

  Yes    No 
22.31 77.69 

22.31% Defaulters

Credit Limit

summary(dt$CreditLimit)

   Min. 1st Qu.  Median    Mean 3rd Qu.    Max. 
  10000   50000  140000  167551  240000 1000000 

psych::describe(dt$CreditLimit)[,c(2:5,8,9)]

       n     mean     sd median   min   max
X1 29601 167550.5 129944 140000 10000 1e+06

Average Credit Limit is $167.5K

High Variance – Std.Dev. = $129.9K

Credit Limit ('000) of Defaulters

   Default     N   mean     sd
1:     Yes  6605 130.13 115.42
2:      No 22996 178.30 131.88

The average Credit Limit of Defaulters ($130.1K) is relatively lower than non-Defaulters ($178.3K).

The Bank is not stupid – they have been offering lower credit card limits to known defaulters

4 Education levels – (1<2<3<4)

Edu.Level
    1     2     3     4 
10581 14024  4873   123 

Edu.Level
   1    2    3    4 
35.7 47.4 16.5  0.4 

Education = '1': Don't have college degrees

Education = '2': College Graduates

Education = '3': MBAs, other Post Graduates

Education = '4': highly educated (PhD!?!), represent a miniscule 0.4%

More educated consumers Default more frequently!!

         Default
Edu.Level  Yes   No
        1 19.2 80.8
        2 23.7 76.3
        3 25.3 74.7
        4  5.7 94.3

Education = '1': 19.2% of the uneducated Default

Education = '2': 23.7% Default

Education = '3': 25.3% MBAs Default (LOL)

Education = '4': 5.7% Ph.D.'s Default (Yay!)

Credit Limit ('000) and Education

   Education     N   mean     sd
1:         1 10581 212.96 135.49
2:         2 14024 147.04 120.68
3:         3  4873 126.62 114.28
4:         4   123 220.89 111.53

The uneducated are getting the largest credit limit

The MBAs are getting the least credit limit! (LOL)

Credit Limit

  Education Default count CreditLimit
1         1     Yes  2036       178.2
2         1      No  8545       221.2
3         2     Yes  3329       112.6
4         2      No 10695       157.8
5         3     Yes  1233        98.0
6         3      No  3640       136.3
7         4     Yes     7       144.3
8         4      No   116       225.5

** Defaulters have a lower average credit limit, at different education levels **