A Fairness Approach to Mitigating Racial Bias of Credit Scoring Models by Decision Tree and the Reweighing Fairness Algorithm

Jen Ying Shih, Ze Han Chin

Research output: Chapter in Book/Report/Conference proceedingConference contributionpeer-review

Abstract

Credit scoring models have been widely applied by financial institutions, Peer to Peer (P2P) lending service providers, and Buy Now Pay Later (BNPL) service providers to evaluate their customers' financial status. Therefore, it has a large impact on consumer financing activities. However, unfair evaluation may occur as the development of credit scoring models contains biased judgments (e.g., racial bias), which deteriorates users' credit access ability. Thus, we study the feasibility of mitigating racial bias in developing a credit scoring model. By using a data set provided by a P2P lending platform, LendingClub, we integrated the C5.0 decision tree algorithm and the reweighing fairness algorithm to develop credit scoring models with cost-sensitive modeling concepts. Multi-class fair credit scoring evaluation was also studied in terms of performance indices, including accuracy, average cost, and unfairness metrics. The results demonstrated that the reweighing fairness algorithm reduced the unfairness and average cost of models. In addition, combining the fairness algorithm and cost-sensitive modeling minimized the average cost of models while maintaining the functionality of the fairness algorithm.

Original languageEnglish
Title of host publication2023 IEEE 3rd International Conference on Electronic Communications, Internet of Things and Big Data, ICEIB 2023
EditorsTeen-Hang Meen
PublisherInstitute of Electrical and Electronics Engineers Inc.
Pages100-105
Number of pages6
ISBN (Electronic)9798350333862
DOIs
StatePublished - 2023
Externally publishedYes
Event3rd IEEE International Conference on Electronic Communications, Internet of Things and Big Data, ICEIB 2023 - Taichung, Taiwan
Duration: 14 04 202316 04 2023

Publication series

Name2023 IEEE 3rd International Conference on Electronic Communications, Internet of Things and Big Data, ICEIB 2023

Conference

Conference3rd IEEE International Conference on Electronic Communications, Internet of Things and Big Data, ICEIB 2023
Country/TerritoryTaiwan
CityTaichung
Period14/04/2316/04/23

Bibliographical note

Publisher Copyright:
© 2023 IEEE.

Keywords

  • credit scoring
  • decision tree
  • fairness algorithm
  • p2p lending

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