Geolocation Risk Scores for Credit Scoring Models

Customer location is considered as one of the most informative demographic data for predictive modeling. It has been widely used in various sectors including finance. Commercial banks use this information in the evaluation of their credit scoring systems. Generally, customer city and district are used as demographic features. Even if these features are quite informative, they are not fully capable of capturing socio-economical heterogeneity of customers within cities or districts. In this study, we introduced a micro-region approach alternative to this district or city approach. We created features based on characteristics of micro-regions and developed predictive credit risk models. Since models only used micro-region specific data, we were able to apply it to all possible locations and calculate risk scores of each micro-region. We showed their positive contribution to our regular credit risk models.