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DADM Q7,8 and 9 Report

1) Increasing a customer's credit limit would be expected to increase their balance by 0.171 units according to the regression analysis. 2) Raising a customer's credit rating by 1 unit would be expected to increase their balance by 2.57 units. 3) Lowering a customer's credit limit or credit rating would be expected to decrease their balance based on the significant positive relationships found between limits/ratings and balances in the regressions.

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79 views4 pages

DADM Q7,8 and 9 Report

1) Increasing a customer's credit limit would be expected to increase their balance by 0.171 units according to the regression analysis. 2) Raising a customer's credit rating by 1 unit would be expected to increase their balance by 2.57 units. 3) Lowering a customer's credit limit or credit rating would be expected to decrease their balance based on the significant positive relationships found between limits/ratings and balances in the regressions.

Uploaded by

greatlakes
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© © All Rights Reserved
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Q7.

A general principle that credits card companies often follow is to assign a higher credit limit to
people with a higher credit rating. Does the data show that this principle is being followed?

Rating
1200

1000

800

600

400

200

0
0 2000 4000 6000 8000 10000 12000 14000 16000

Ratin
  Limit g
Limit 1  
Rating 0.996879737 1

Interpretations: The correlation between credit limit and credit rating is very high 0.99. Thus, this is
evident enough to confirm that general principal of credit companies assigning higher credit limit to
a person having higher credit rating is followed.
Q8. Run a simple linear regression of balance on the credit limit. (Here credit limit is the X and the
balance is the Y). Report the coefficients and the R-squared. Show a scatter plot

2500

2000 f(x) = 0.17 x − 292.79


R² = 0.74

1500
Credit Limit

1000

500

0
0 2000 4000 6000 8000 10000 12000 14000 16000
Balances

Interpretations:

Interpretations:

1) R square - 74% of variability on balances are linked to the credit limit

2) P-value: Based on the above p- value the hypothesis is rejected and credit limit plays a significant
factor in balances.

3) Coefficients: Based on the above table, there will be 0.171 units of balance increased per credit
rating.

Q9. Run a simple linear regression of balance (Y) on credit rating (X). Report the coefficients and R-
squared. Show a scatter plot.
Balance
2500

2000 f(x) = 2.57 x − 390.85


R² = 0.75

1500

1000

500

0
0 200 400 600 800 1000 1200

Interpretations:

1) R square - 74% of variability on balances are linked to the credit rating

2) P-value: Based on the above p- value the hypothesis is rejected and credit rating plays a significant
role in balance

3) Coefficients: Based on the above table, there will be 2.5 units of balance increased per credit
rating.

Q.10 Consider your findings in questions 8-9. Discuss business mechanisms to increase or decrease
the balance on credit cards. Try to quantify your answers.

a) Based on the findings noted from question 8, There is 0.171 unit increase in the people is
balances, when the credit limit is increased. Thus in order to increase or decrease the balances,
change in credit limit play an important role, as the p-value is less than 0.05
b) Based on the findings noted from question 9, there is a 2.5 units increase in balance when the
people rating goes up. Thus credit rating is a significant factor in increase or decrease of balances in
credit card, this is evident as the p-value is less than 0.05

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