No abstract

Credit scoring has become an important risk management tool for money lending institutions. Over the years, statistical and classical machine learning models have been the most researched risk management tools in credit scoring literature, and recently the focus has turned to deep learning models. This transition is due to better performances that are shown by deep learning models in different domains. Despite deep learning models' superior performances, there is still a need for explaining how these models make their predictions. The non-transparency nature of deep learning models has created a bottleneck for their use in credit scoring. Explanations of decisions are important for lending institutions since it is a requirement for automated decisions that are generated by non-transparent models to be explained. The other issue in using deep learning models, specifically 2D Convolutional Neural Networks (CNNs), in credit scoring is the need to have the data in image format. We propose an explainable deep learning model for credit scoring which can harness the performance benefits offered by deep learning and yet comply with the legislation requirements for the automated decision-making processes. The proposed method converts tabular datasets into images and thus allowing the application of 2D CNNs in credit scoring. Each pixel of the image corresponds to a feature bin of the tabular dataset. The predictions from the 2D CNNs were explained using state-of-the-art explanation methods. Furthermore, explanations were evaluated using a sanity check methodology and also performances of the explanation methods were compared quantitatively. The proposed explainable deep learning model outperforms the other credit scoring methods on publicly available credit scoring datasets.

The past decade has shown a surge in the use and application of machine learning and deep learning models across different domains. One such domain is the credit scoring domain, where applicants are scored to assess their credit-worthiness for loan applications. During the scoring process, it is key to assure that there are no biases or discriminations that are incurred. Despite the proliferation of machine learning and deep learning models (referred to as black-box models in the literature) in credit scoring, there is still a need to explain how each prediction is made by the black-box models. Most of the machine learning and deep learning models are likely to be prone to unintended bias and discrimination that may occur in the datasets. To avoid the element of model bias and discrimination, it is imperative to explain each prediction during the scoring process. Our study proposes a novel optimisation formulation that generates a sparse counterfactual via a custom genetic algorithm to explain a black-box model's prediction. This study uses publicly available credit scoring datasets. Furthermore, we validated the generated counterfactual explanations by comparing them to the counterfactual explanations from credit scoring experts. The proposed explanation technique does not only explains rejected applications, it can also be used to explain approved loans.