The impact of sample bias on consumer credit scoring performance and profitability

Abstract

This article seeks to gain insight into the influence of sample bias in a consumer credit scoring model. In earlier research, sample bias has been suggested to pose a sizeable threat to predictive performance and profitability due to its implications on either population drainage or biased estimates. Contrary to previous—mainly theoretical—research on sample bias, the unique features of the data set used in this study provide the opportunity to investigate the issue in an empirical setting. Based on the data of a mail-order company offering short-term consumer credit to their consumers, we show that (i) given a certain sample size, sample bias has a significant effect on consumer credit-scoring performance and profitability, (ii) its effect is composed of the inclusion of rejected orders in the scoring model, and—to a lesser extent—the inclusion of these orders into the variable-selection process, and (iii) the impact of the effect of sample bias on consumer credit-scoring performance and profitability is modest.

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