How to predict credit risk

If you remember our main objective from the previous chapter, we were dealing with customer data from a German bank. We will quickly recap our main problem scenario to refresh your memory. These bank customers are potential candidates who ask for credit loans from the bank with the stipulation that they make monthly payments with some interest on the amount to repay the credit amount. In a perfect world there would be credit loans dished out freely and people would pay them back without issues. Unfortunately, we are not living in a utopian world, and so there will be customers who will default on their credit loans and be unable to repay the amount, causing huge losses to the bank. Therefore, credit risk analysis is one of the crucial areas which banks focus on where they analyze detailed information pertaining to customers and their credit history.

Now coming back to the main question, for predicting credit risk, we need to analyze the dataset pertaining to customers...