Project Report

on

Credit-Card-Approval-Prediction

Submitted

In Partial Fulfillment of

MASTER OF COMPUTER APPLICATIONS (MCA)

Submitted by:

Saurabh Bajpai

23/SCA/MCA/046

Under the Supervision of:

Dr. Shruti Gupta

Assistant
Professor

School of Computer Applications

Manav Rachna International Institute of Research and Studies
(DEEMED TO BE UNIVERSITY)
Sector-43, Aravalli Hills
Faridabad – 121001

July 2024
 Declaration

I do hereby declare that this project work entitled “Credit-Card-Approval-Prediction” submitted

by me for the partial fulfillment of the requirement for the award of MASTER OF COMPUTER
APPLICATIONS is a record of my own work. The report embodies the finding based on my study
and observation and has not been submitted earlier for the award of any degree or diploma to any
Institute or University.

SIGNATURE
Name: Saurabh Bajpai
Roll No: 23/SCA/MCA/046
Date: July 11, 2024
 Certificate from the Guide

This is to certify that the project report entitled “Credit-Card-Approval-Prediction”submitted

in partial fulfillment of the degree of MASTER OF COMPUTER APPLICATIONS to Manav
Rachna International Institute of Research and Studies, Faridabad is carried out by Mr.Saurabh
Bajpai, Roll No. 23/SCA/MCA/046 under my guidance.

Signature of the Guide

Name: Dr. Shruti Gupta

Designation: Assistant Professor
Date:

Head of Department
Name: Dr. Suhail Javed Quraishi
Date:
 ACKNOWLEDGEMENT

I gratefully acknowledge for the assistance, cooperation, guidance and clarification provided
by Mr. Piyush Pankaj during the development of “Credit-Card-Approval-Prediction”. My
extreme gratitude to Dr. Shruti Gupta-Assistant Professor who guided us throughout the
project. Without his willing disposition, spirit accommodation, frankness, timely clarification
and above all faith in us, this project could not have been completed in due time. His readiness
to discuss all important matters at work deserves special attention of. I would also like to thank
all the faculty members of the computer application department for their cooperation and
support. I would like to give special gratitude to Dr. Raj Kumar–Associate Professor for his
guidance during the project.

I would like to extend my sincere gratitude to Prof. Dr. Suhail Javed Quraishi – HOD for
her valuable teaching and advice. I would again like to thank all faculty members of the
department for their cooperation and support. I would like to thank non-teaching staff of the
department for their cooperation and support.

I would like to extend special thanks to Prof. Dr. Hanu Bhardwaj, Dean - SCA for her
valuable insight and motivation.

I perceive this opportunity as a big milestone in my career development. I will strive to use
gained skills and knowledge in the best possible way, and I will continue to work on their
improvement, in order to attain desired career objectives. Hope to continue cooperation with
all of you in the future

Name Saurabh Bajpai

Roll No 23/SCA/MCS/046
Date July 11 2024
 INDEX
S.No. Title Signature
1 Introduction
• About Organization
• Aims & Objectives
• Manpower

2 System Study
• Existing System along with limitations
• Proposed system along with advantages

3 Feasibility Study:
• Technical
• Behavioural
• Economic

4 Project Monitoring System : Gantt Chart

5 System Analysis :
• Requirement Specification
• System Flowcharts
• DFDs/ERDs

6 System Design : File/Data Design

7 Input/Output form design

• Screen Design
• Report Design

7 Implementation and System Testing for each Task

8 System requirements (Hardware/Software)

9 Documentation

10 Scope of the Project

11 Bibliography
 1) INTRODUCTION
Credit card is an important financial tool that can be used to make purchases and manage
finances. This payment card works on a deferred payment basis, in which cardholders get to
use their card first and pay for their purchases later. A revolving account is generated and a line
of credit is permitted for the user, from this the cardholder could use the money for any
merchant payment or cash advance .
Credit card usage has increased dramatically in recent years. According to statistics, there are
2.8 billion credit cards in use worldwide and 1.06 billion credit cards in use in the United States
. The average American has four credit cards. The number of cards carried per resident in the
European Union ranges from 0.8 to 3.9, according to research by the European Central Bank.
The number of persons applying for credit cards rises along with the use of credit cards.
Credit cards are major of four different types. They are Visa, Mastercard, American Express,
and Discover.
• Visa: Visa is the largest credit card network in the world and was founded in 1958 by
Bank of America as BankAmericard. In 1976, the network was renamed Visa and
expanded to become a global brand. Visa offers a range of benefits for cardholders,
including fraud protection, extended warranties, and travel insurance. One advantage
of Visa cards is their wide acceptance, as they are accepted at millions of merchants
worldwide.

• Mastercard: Mastercard was founded in 1966 as Master Charge, the Inter-bank Card,
and later changed its name to Mastercard in 1979. Like Visa, Mastercard offers fraud
protection and travel insurance, as well as benefits such as Priceless Cities, which offers
cardholders exclusive experiences in major cities around the world. Mastercard is
accepted at millions of merchants worldwide and is known for its secure payment
processing technology.

• American Express: American Express, also known as Amex, was founded in 1850 as
a freight forwarding company and later expanded into financial services. Amex is both
a credit card issuer and a network, meaning they issue their own cards in addition to
processing transactions for merchants. Amex cards are known for their exclusive
benefits, such as airport lounge access and concierge services. One advantage of Amex
cards is their strong rewards program, which offers points that can be redeemed for
travel, merchandise, or statement credits.

• Discover: Discover is a newer credit card network, founded in 1985 by Sears. Discover
is known for its cash-back rewards program, which offers up to 5% back on certain
purchases . Discover also offers no annual fees and a range of other benefits, such as
free FICO credit scores and fraud protection. One advantage of Discover cards is their
US-based customer service, which is available 24/7.
In the modern economy, credit approval for credit cards plays a crucial role. Commercial banks
or financial institutions receive many credit card applications. Few applications are rejected for
reasons like low-income levels, poor credit history, incomplete applications, or other inquiries
on the credit report. The process of credit card approval involves analyzing numerous factors
such as debt, ethnicity, and others. The decision-making process can be time-consuming and
error-prone, which may lead to inconsistent outcomes. Therefore, this task of analysis and
approval of credit cards can be automated with machine learning techniques.
Machine learning(ML) is a branch of artificial intelligence that enable computers to identify
patterns in data and make predictions based on the patterns. Previously, several studies 3 have
been done to predict credit card approval with ML algorithms. Among these ML algorithms,
we selected LRC, RFC, and Support Vector Classifier(SVC). Additionally, we utilized
ensemble bagging for predicting credit card approval.
In this thesis, we utilized a credit card approval dataset from Kaggle, which includes 16
variables. The dataset contains various customer variables such as age, gender, married, debt,
bank customer, industry, ethnicity, years employed, prior default, employed, credit score,
driver’s license, citizen, zip code, income, and approval for predicting credit card approval.
The preprocessing has been performed on the credit card approval dataset to handle the tasks
such as removing duplicates, handling missing data, encoding categorical variables, and scaling
numerical variables. The preprocessed dataset was split into the training and testing set using
the train-test split function. The selected ML algorithms are trained using the training set and
tested using the testing set.
The motivation for choosing these LRC, RFC, and SVC is based on the effectiveness of the
dataset because they can handle non-linear relationships between the features and the target
variable and these are very useful when dealing with large datasets. In ensemble learning, we
choose the bagging classifier because this is done by training several models on different
subsets of the data and then combining their predictions. So by performing this, we can get a
good understanding of how the accuracy varies between LRC, RFC, SVC, and ensemble
bagging classifier

Ethical, societal and sustainability aspects

Ethical aspects: The dataset we are utilizing in this thesis is available in the public domain
and can be accessed by anyone. The data is not closed, even though it contains some sensitive
individual financial data. The data we are using is not real, and there are no issues regarding
GDPR because it is not related to any particular country or individual.

Societal aspects: It is essential to ensure that credit card approval decisions are unbiased
and fair because they can have a major effect on people’s life. In this thesis, we are sure that
the ML model used to predict credit card approval status is not biased toward any specific
group of people and positively affects society by identifying trends and patterns in credit card
applications. That could make it easier to identify areas that require financial support or
education.

Sustainability aspects: This thesis does not have any direct relation to the sustainability
aspects.
 1.1) ABOUT ORGANIZATION
Edunet Foundation is a social enterprise which was founded in 2015 and focuses on bridging
the academia-industry divide, enhancing student employability, promoting innovation and
creating an entrepreneurial ecosystem in India. Working primarily with emerging technologies,
and striving to leverage them to augment, upgrade the knowledge ecosystem and equip the
beneficiaries to become contributors themselves, we work extensively to build a workforce
with an IR 4.0 enabled career.

The organization has enjoyed Special Consultative Status with the Economic and Social
Council (ECOSOC) of the United Nations since 2020. With a national footprint, EF’s
programs, online and instructor-led, benefit tens of thousands of learners every year.

The organization primarily focuses on youth skilling, innovation, and entrepreneurship. Since
its inception, the organization has helped young people from different geographies in India to
prepare for industry 4.0 jobs. EF has a national footprint, and it works with regulators, state
technical universities, large network of engineering colleges and high schools around India.
The programs and initiatives undertaken by Edunet Foundation are all focused on digital
skilling and conforms to the organization’s mission 2025 goals aimed at skilling and impacting
over 1,000,000 future workforces for IR 4.0 economy. Edunet Foundation enjoys “Special
Consultative Status” with the Economic and Social Council at the United Nations.

• Equipping the Workforce for the Future: Edunet Foundation aims to equip students
with the skills necessary for the Fourth Industrial Revolution (Industry 4.0) by providing
training in emerging technologies.
• Focus on Academia-Industry Collaboration: They work to bridge the gap between
what is taught in schools and the skills required in the workplace.
• Nationwide Reach: Edunet Foundation works across India, collaborating with regulators,
universities, engineering colleges, and high schools.
• Empowering Educators: They recognize the importance of teachers and trainers, and
provide them with programs to enhance their skills.
• Social Impact: Edunet Foundation strives to provide opportunities for all, regardless of
background or social standing.
 1.2) AIM & OBJECTIVES

The primary focus of the project is expressed under aims and objectives as follows.

Aim
This research supports the decision making process while speeding up the process to give a
benefit for the bank as well as for the applicant and to attract on time paying customers by
using banking data for smarter data–driven decision making. This research is highly applicable
for Sri Lankan banking industries as most of the banks are granting credit card facilities to the
customers. Hence the application of the model to local context to be considered.

Objectives
The primary objective of this project is to develop a machine learning model capable of
predicting whether an applicant is likely to be a 'good' or 'bad' client based on the available
data. Unlike traditional approaches where the definition of 'good' or 'bad' is predetermined, our
model aims to autonomously identify patterns and characteristics associated with
creditworthiness. By harnessing the power of machine learning algorithms, particularly the
Random Forest classification technique, we seek to create a predictive model that can assist
financial institutions in making more informed and objective decisions regarding credit card
approvals.

Development of Predictive Model

The primary objective of this project is to develop a predictive model that can accurately assess
the creditworthiness of applicants. Unlike traditional credit scoring models, which rely on
predefined criteria, our model aims to learn from historical data to identify patterns associated
with creditworthiness. By leveraging the power of ML algorithms, particularly Random Forest
classification, we seek to create a more flexible and adaptive model capable of handling
complex decision-making scenarios.

Mitigation of Human Bias

Another key objective is to mitigate the inherent biases present in traditional credit scoring
processes. Human decision-makers may unconsciously introduce biases based on factors such
as race, gender, or socioeconomic status, leading to unfair outcomes. By employing ML
algorithms that operate on objective data, we aim to reduce the influence of subjective
judgments and promote fairness and inclusivity in the credit approval process.

Enhancement of Risk Management

Furthermore, we aim to enhance risk management practices within financial institutions by
providing more accurate predictions of credit risk. A robust predictive model can help lenders
identify high-risk applicants and take proactive measures to mitigate potential losses. By
improving the accuracy of credit risk assessments, our model can contribute to the overall
stability and sustainability of the financial system.
 2) SYSTEM STUDY

2.1) Existing System along with Limitations:

There are two main approaches to credit card approval traditionally:

i) Credit Scoring: This is the most common method. Financial institutions rely on credit
scores generated by credit bureaus based on factors like income, credit history, debt-to-income
ratio, and payment history. While effective, credit scores have limitations.

ii) Manual Review: Loan officers manually analyze applications, considering additional
factors beyond credit scores, such as employment stability, references, and purpose of the credit
card. This approach allows for more nuanced decisions but can be time-consuming and
subjective.

Limitations of Existing Systems:

a) Limited Data Scope: Traditional methods primarily rely on credit history data,
potentially overlooking factors that could influence repayment ability.

b) Lack of Transparency: Credit scoring models can be complex and difficult to

interpret, making it hard for applicants to understand why they were rejected.

c) Potential Bias: Traditional models may perpetuate historical biases present in the
underlying data, leading to unfair rejections for certain demographics.

d) Inefficiency: Manual review processes are slow and resource-intensive, impacting

turnaround times for applicants.

Here's where your Machine Learning Model can address these limitations:

a) Leveraging More Data: Machine learning models can incorporate a wider range of
data points beyond credit scores, like income trends, employment stability, and alternative
credit information.

b) Improved Accuracy: By analyzing vast amounts of data, machine learning models can
potentially achieve higher accuracy in predicting creditworthiness compared to traditional
methods.

c) Reduced Bias: With careful design and data cleaning, machine learning models can help
mitigate bias present in historical data.

d) Increased Efficiency: Automation powered by your model can streamline the initial
application review process, freeing up human resources for complex cases.
2.2) Proposed System along with advantages:

This section of project report will outline the proposed credit card approval prediction system
and its advantages.

Proposed System:

a) Data Collection: Gather historical credit card application data including applicant
information (income, employment, demographics), credit history data, and application
outcome (approved/rejected).

b) Data Preprocessing: Clean and prepare the data for analysis, handling missing values
and transforming data into a format suitable for machine learning algorithms.

c) Model Training: Select and train a machine learning algorithm (e.g., Random Forest,
Gradient Boosting) on the prepared data. This involves feeding the model historical data and
allowing it to learn the patterns that differentiate approved and rejected applicants.

d) Model Evaluation: Assess the model's performance on unseen data to ensure its
accuracy and generalizability. Metrics like accuracy, precision, recall, and F1-score can be used
for evaluation.

e) Model Deployment: Integrate the trained model into a production system where it can
receive new application data and predict the likelihood of approval for each applicant.

Advantages:

i) Enhanced Accuracy and Risk Assessment: The model can potentially achieve
higher accuracy in predicting creditworthiness compared to credit scores alone, leading to
better risk assessment for lenders.

ii) Faster Application Processing: Automating initial screening with the model can
significantly reduce processing times.

iii) Data-Driven Decisions: The model's predictions are based on objective data analysis,
reducing subjectivity and potential bias in the approval process.

iv) Improved Customer Experience: Faster processing and potentially higher approval
rates for qualified applicants can lead to a more positive customer experience.

v) Targeted Marketing: Insights from the model can help identify customer segments
with a higher likelihood of approval, allowing for more targeted marketing campaigns for
specific credit card products.

vi) Adaptability: Machine learning models can be continuously improved by incorporating

new data and evolving market conditions.
 3) FEASIBILITY STUDY
This section will delve deeper into the feasibility of your credit card approval prediction
system, addressing the key factors mentioned previously with more detail:

Data Availability:

Data Source: Identify potential sources for historical credit card application data. This could
include:

• Collaboration with a financial institution: Partnering with a bank or credit union can
provide access to real-world data. This might require data access agreements and
adherence to their data security protocols.

• Public datasets: Explore publicly available datasets related to credit card applications,
though these might be limited in scope or representativeness.

• Synthetic data generation: Techniques can be used to generate realistic but anonymized
data, mitigating privacy concerns but requiring expertise in data manipulation.

Data Requirements: Specify the specific data points required for model training. This
might include applicant demographics, income and employment verification, credit bureau data
(if available), alternative credit information (utility bills, rent payments), and details from the
application itself (requested credit limit, purpose of card).

Data Quality Assessment: Outline a plan for assessing data quality. Techniques like data
profiling can identify missing values, inconsistencies, and outliers. Data cleaning procedures
like imputation and normalization might be necessary to prepare the data for modeling.

Data Privacy Considerations: Discuss relevant data privacy regulations such as Fair
Credit Reporting Act (FCRA) in the US or General Data Protection Regulation (GDPR) in the
EU. Emphasize anonymization techniques and secure data storage practices to ensure
compliance.
3.1) TECHNICAL FEASIBILITY:
This section will provide a detailed analysis of the technical aspects involved in building your
credit card approval prediction system.

a) Machine Learning Algorithms:

1) Classification Algorithms: Since credit card approval prediction is essentially a

binary classification problem (approved/rejected), several algorithms can be
considered. Here are some popular choices and their pros and cons:

• Random Forest: A robust and interpretable algorithm that combines multiple

decision trees, offering good accuracy and handling various data types. However, it can
be computationally expensive for very large datasets.
• Gradient Boosting: Another powerful algorithm known for high accuracy and
flexibility. However, it can be prone to overfitting if not carefully tuned, and
interpretability can be challenging.
• Logistic Regression: A simpler linear model that's easy to interpret. However, it
might not capture complex non-linear relationships present in the data, potentially
impacting accuracy.
• Support Vector Machines (SVM): Efficient for high-dimensional data and
offers good generalization capabilities. However, SVMs can be computationally
expensive for large datasets and might be less interpretable than other options.

2) Algorithm Selection: Choosing the most suitable algorithm depends on various

factors:
• Data characteristics: The complexity and dimensionality of the data can influence
algorithm selection.
• Desired level of accuracy vs. interpretability: A trade-off often exists
between achieving high accuracy and understanding how the model arrives at its
predictions.
• Computational resources: Consider the training time and hardware requirements
of each algorithm.

b) Evaluation Metrics:

To assess the performance of your chosen machine learning model, you'll need to employ
appropriate evaluation metrics. Here are some key metrics for classification problems:

• Accuracy: Overall percentage of correct predictions made by the model.

• Precision: Measures the proportion of true positives among the predicted positives
(avoiding false positives).
• Recall: Measures the proportion of actual positives the model correctly identified
(avoiding false negatives).
• F1-score: A harmonic mean of precision and recall, providing a balanced view of
model performance.
ROC AUC (Area Under the Receiver Operating Characteristic Curve):
Measures the model's ability to distinguish between approved and rejected applicants.

c) Model Training and Tuning:

• Data Preprocessing: Before training the model, the data needs to be preprocessed
to ensure its quality and suitability for machine learning algorithms. This might involve
handling missing values, scaling numerical features, and encoding categorical
variables.
• Training-Validation-Test Split: Divide the data into three sets: training (used to
build the model), validation (used to tune hyperparameters), and testing (used for final
evaluation of the model'sgeneralizability on unseen data).
• Hyperparameter Tuning: Machine learning algorithms often have parameters
that can be adjusted to optimize performance. Techniques like grid search or random
search can be used to identify the optimal hyperparameter settings for your chosen
algorithm.

d) Model Deployment:

• Once trained and evaluated, the model needs to be deployed in a production

environment where it can receive new application data and predict approval
probabilities. This might involve integrating the model into a web application or API
used by the financial institution.
• Monitoring and Retraining: Machine learning models can degrade over time as
data patterns evolve. Regularly monitor the model's performance and retrain it with new
data to maintain accuracy and effectiveness.

3.2) ECONOMIC FEASIBILITY:

This section will delve into the economic viability of your credit card approval prediction
system, considering both costs and potential benefits.

Cost Analysis:

1) Data Acquisition:

a) Purchasing Data: If buying historical credit card application data, factor in the cost per
data point or dataset.

b) Partnership with Financial Institution: While potentially free, collaboration might

involve adhering to data access agreements and potential limitations on data scope.
2) Cloud Computing Resources:

Training complex models often requires significant computing power. Estimate costs
associated with cloud platforms like GCP or AWS based on resource usage (CPU, memory,
stoRage).

a) Software Licenses:

Open-source libraries like scikit-learn are free, but some specialized libraries might require
paid licenses. Factor in any potential licensing costs.

b) Personnel Costs:

Consider the cost of employing data scientists, developers, and IT personnel to build, maintain,
and deploy the system.Alternatively, explore outsourcing options or collaboration with external
data science teams, factoring in associated costs.

3) Benefit Analysis:

a) Increased Efficiency:

Quantify the time saved by automating initial application screening with the model. Consider
the number of applications processed annually and the average processing time per
application.Estimate potential cost savings associated with reduced manual review processes.

b) Reduced Risk of Defaults:

By approving applicants with a higher predicted likelihood of repayment, estimate the potential
reduction in defaults and associated losses.

i) Increased Revenue:

Faster processing and potentially higher approval rates for qualified applicants can lead
to increased credit card issuance and associated revenue generation.

4) Return on Investment (ROI):

Develop a financial model to estimate the ROI of your system. Consider the following:

• Project the total development and deployment costs over a specific timeframe (e.g., 3
years).
• Estimate the annualized cost savings from increased efficiency and reduced defaults.
• Project the annualized revenue increase from potentially higher credit card issuance.
• Calculate the ROI using a formula like ROI = (Net Benefit / Total Investment) x 100%.
A positive ROI indicates the project is economically viable.
3.3) ECONOMIC FEASIBILITY :
Credit card approval prediction can be financially beneficial. It reduces defaults, saving
money, and streamlines approvals for efficiency. Targeted marketing with the model
increases revenue. However, data acquisition and model development incur costs.
Regulations add another hurdle. To assess feasibility, weigh cost savings and revenue gains
against development costs. Ensure good data and understand regulations. Done well, it's an
economically sound investment.

a) Benefits:

• Reduced Risk: Quantify the potential reduction in loan losses. Look at historical
default rates and estimate how much a more accurate approval system could save.
Consider factors like:
o Average default amount
o Current approval rate vs. predicted approval rate with a high-performing model
• Improved Efficiency: Calculate the time and resources currently spent on manual
credit assessment. Estimate how much faster approvals could be with a model and
translate that into cost savings. Consider factors like:
o Average processing time per application
o Labor costs associated with manual review
o Potential reduction in manpower needed
• Targeted Marketing: Estimate the potential increase in revenue from more
effective marketing campaigns. Look at historical marketing spend and estimate how
much more targeted campaigns could generate new customers with higher approval
rates. Consider factors like:
o Response rates for different customer segments
o Average spending of different customer profiles
• Competitive Advantage: Analyze the competitive landscape and estimate the
potential increase in market share from faster approvals and better risk management.
Evaluate factors like:
o Typical processing times for competitor credit card applications
o Customer churn rates due to slow approvals

b) Costs:

• Data Acquisition:
o Internal Data: If using internal application data, estimate the cost of extracting,
cleaning, and preparing the data for modeling.
o External Data: Research the cost of purchasing historical credit application
data from third-party vendors. Prices can vary significantly based on data
quality and volume.
• Model Development:
o Internal Resources: If using in-house data science expertise, consider the cost
of salaries, benefits, and software licenses.
o External Resources: Research the cost of hiring data scientists or data science
consultancies to build and maintain the model.
• Regulatory Compliance:
o Fair Lending Practices: Estimate the cost of ensuring the model doesn't
discriminate based on protected characteristics. This might involve legal
consultations and model bias testing.
o Data Privacy Regulations: Evaluate the cost of complying with regulations
around data collection, storage, and usage. This may involve data security
measures and user consent procedures.
 4) PROJECT MONITORING SYSTEM

A well-defined project monitoring system is crucial for ensuring the ongoing effectiveness and
success of your credit card approval prediction system. Here's a breakdown of key components:

Monitoring Metrics:

• Model Performance: Regularly track key metrics like accuracy, precision, recall,
F1-score, and ROC AUC. Monitor how these metrics evolve over time to identify
potential performance degradation.
• Fairness and Bias: Implement metrics to detect bias in the model's predictions. This
could involve analyzing approval rates across different demographic groups or using
fairness metrics like statistical parity or disparate impact.
• Data Quality: Monitor data quality metrics like missing value rates, outlier presence,
and concept drift (changes in the underlying data distribution). Ensure the data used for
prediction remains consistent with the data used for training.
• Business Impact: Track key business metrics relevant to the credit card approval
process. This could include application processing times, approval rates, default rates,
and customer satisfaction. Analyze how the model is impacting these metrics.

Monitoring Tools and Techniques:

• Automated Alerts: Set up automated alerts that trigger when certain metrics deviate
significantly from expected values. This allows for early detection of potential issues
with the model or data quality.
• Dashboarding: Develop dashboards that visualize key monitoring metrics. This
provides a quick and clear overview of the system's performance and potential areas
requiring attention.
• A/B Testing: Conduct A/B testing to compare the performance of the model with a
baseline approach (e.g., traditional credit scoring). This helps assess the actual impact
of the model on the credit card approval process.

Monitoring Frequency:

The frequency of monitoring will depend on the stability of your system and the risk tolerance
of the financial institution. Here's a possible schedule:

Daily: Monitor core model performance metrics like accuracy and fairness.

Weekly: Analyze data quality metrics and business impact metrics.

Monthly: Conduct more in-depth analysis of model performance trends and potential bias.
Timeline and Project:
The structure of the IBM Skillsbuild internship camp is as follows:

Gantt Chart:
 5) SYSTEM ANALYSIS

A system analysis for a credit card approval prediction system delves into the current approval
process to pinpoint inefficiencies and key decision factors. It then defines success metrics like
accuracy and fairness for the new system. Data sources like application forms, credit bureaus,
and internal bank records are identified and assessed for quality and completeness. Suitable
machine learning algorithms are evaluated for their effectiveness in predicting
creditworthiness. A data pre-processing pipeline is designed to clean, format, and prepare the
data for model training. Robust security protocols are established to protect sensitive
information throughout the system. The plan also includes ongoing monitoring and retraining
of the model to ensure optimal performance. Furthermore, the analysis emphasizes the
importance of model explainability to understand the reasoning behind approval predictions.
Regulatory compliance and potential biases in decision-making are also considered to ensure
responsible credit card lending practices. Finally, the entire system analysis is documented for
development, deployment, and ongoing maintenance.

This analysis lays the groundwork for a powerful tool, identifying bottlenecks in the current
process and setting clear goals for the new system. By leveraging diverse data sources and
cutting-edge machine learning, the system will predict creditworthiness accurately and fairly.
However, security, explainability, and fair lending practices remain paramount throughout the
development and deployment phases.

5.1) Requirement specification for credit card approval prediction

a) Functional Requirements:

i) Data Acquisition

• The system shall be able to collect applicant data from various sources: * Application
forms (online and offline)
• Credit bureaus (with applicant consent)
• Internal bank databases (transaction history, account information)
• The system shall ensure secure data transfer following industry standards.

ii) Data Preprocessing

• The system shall clean and format data to address inconsistencies, missing values, and
outliers.
• The system shall perform data transformations (e.g., encoding categorical variables)
suitable for machine learning algorithms.

iii) Feature Engineering

• The system shall allow the creation of new features derived from existing data to
improve model performance.
• The system shall document the purpose and logic behind each new feature.
iv) Model Training & Selection

• The system shall support the training of various machine learning algorithms for credit
card approval prediction.
• Examples: Logistic Regression, Random Forest, Gradient Boosting Machines
• The system shall allow for hyperparameter tuning to optimize model performance.
• The system shall evaluate trained models based on metrics like accuracy, precision,
recall, and F1 score.
• The system shall allow selection of the best performing model based on pre-defined
criteria.

v) Model Deployment

• The system shall integrate the chosen model with the credit card application system for
real-time predictions.
• The system shall provide an API or interface for applications to submit applicant data
and receive approval predictions.

vi )Monitoring & Feedback

• The system shall monitor model performance over time, tracking metrics like accuracy
and fairness.
• The system shall allow for retraining the model with new data to maintain optimal
performance.
• The system shall support the incorporation of human expert feedback to improve model
predictions over time.

b) Non-Functional Requirements:

i) Performance

• The system shall generate prediction results within an acceptable timeframe (e.g.,
seconds) for real-time application processing.
• The system shall be able to handle a high volume of application requests without
significant performance degradation.

ii) Security

• The system shall implement robust security measures to protect sensitive applicant data
throughout processing.
• The system shall comply with relevant data security regulations (e.g., PCI DSS).

iii) Scalability

• The system shall be scalable to accommodate future growth in data volume and user
base.
 • The system architecture should allow for easy addition of new data sources or model
retraining processes.

iv) Auditability

• The system shall maintain an audit log for all model training, deployment, and
prediction activities.
• The audit log should capture details like timestamps, user information, and model
performance metrics.

v) Interpretability & Explainability

• The system should provide explanations for model predictions, particularly for rejected
applications.
• This can involve feature importance analysis or decision tree visualization to
understand factors influencing the prediction.

vi) Regulatory Compliance

• The system shall comply with all relevant regulations governing credit decisions, such
as the Fair Credit Reporting Act (FCRA) in the US.
• The system should be able to demonstrate that credit card approvals are not biased
based on protected characteristics.
5.2) SYSTEM FLOWCHART

Figure 5.2 : System Flowchart

a) Data Collection :

The dataset used in this thesis is the credit card approval dataset taken from Kaggle is available
in the public domain and can be accessed by anyone. It is a dataset that contains information
about credit card applications, including personal and financial information about the
applicants. This dataset contains 20 variables with 15 features and 1 target variable. The target
variable in this dataset is whether the credit card application was approved or not, represented
by the "Approved" column and the variables of the dataset are discussed below:

• ID : Client Number

• CODE_GENDER : gender

• FLAG_OWN_CAR : is there a car

• FLAG_OWN_REALITY : is there a property

• CNT_CHILDREN : Number of children

• AMT_INCOME_TOTAL : Annual Income

• NAME_INCOME_TYPE : Income category

• NAME_EDUCATION_TYPE : Education level

• NAME_FAMILY_STATUS : Marital status

• NAME_HOUSING_TYPE : Way of living

• DAYS_BIRTH : Birthday

• DAYS_EMPLOYED : Start date of employment

• FLAG_MOBIL : Is there a mobile phone

• FLAG_WORK_PHONE : Is there a work phone

• FLAG_EMAIL : Is there an email

• FLAG_PHONE : Is there a phone

• OCCUPATION_TYPE : Occupation

• CNT_FAM_MEMBER : Family size

• MONTH_BALANCE : Record month

• STATUS : Status
The credit card approval dataset taken from Kaggle is available in the public domain and can
be accessed by anyone. The "application_record.CSV" function in the pandas library is used to
load the dataset. The df.head function is used for an overview of the dataset.

b) Overview of dataset

Figure 5.2(b) : Overview of dataset

c) Data Preprocessing :

In this thesis, the dataset was preprocessed using various techniques such as removing
duplicates and handling missing data. To remove duplicates, the drop_duplicates() function
was utilized, which resulted in the elimination of all duplicate rows from the dataset. For
handling missing data, the drop() function was used to drop rows with missing values. Since
the dataset contained only 12 rows with missing values, dropping these values did not
significantly impact the performance of the models.

Figure 5.2(c) : Removing duplicates and handling missing values.

d) Label Encoding :

The LabelEncoder() function is a data preprocessing technique used to convert categorical data
into numerical data in a machine-readable format. Many ML algorithms require input variables
to be numerical, and categorical variables cannot be directly used as input variables.
LabelEncoder() function solves this problem by encoding the categorical data into numerical
values. It assigns a unique integer to each category so that each category is represented by a
distinct integer. This LabelEncoder() function is imported from "sklearn.preprocessing".
Before using the label encoding preprocessing technique, the features and their datatypes are
described in Figure In this thesis, the variables ’Industry’, ’Ethnicity’, and ’Citizen’ are
handled with encoding categorical variables. After using the label encoding preprocessing
technique, the features and their datatypes are described in Figure.
 Figure 5.2(d) : Label Coding

e) Standard Scaler :

The StandardScaler() function is a data preprocessing technique used to normalize numerical

features in the dataset. This function transforms numerical data features to have a mean of 0
and a standard deviation of 1 so that they can be compared more easily. StandardScaler()
function is imported from "sklearn.preprocessing". Before using the standard scaler
preprocessing technique, the features and their datatypes are described in Figure . In this thesis,
the variables ’Debt’, ’ZipCode’, ’Income’, ’Age’, and ’YearsEmployed’ are handled with
Scaling numerical variables. After using the standard scaler preprocessing technique, the
features and their datatypes are described in Figure
 Figure 5.2(e) : Standard Scaler
f) Data Splitting :
The dataset was divided into training and testing sets using the train_test_split function from
the "sklearn.model_selection" module. This function randomly splits the data into a training
set and a testing set based on a specified test-size parameter. The training set is used to train
the models. The testing set is used to evaluate the final performance of the selected model. The
train_test_split function used in this thesis is shown below:

Figure 5.2(f) : data splitting

The parameters used in the above code are:

• X_train: training features (80% of the data)

• X_test: testing features (20% of the data)
• y_train: training target variable (80% of the data)
• y_test: testing target variable (20% of the data)
• test_size: This parameter determines the amount of data used for testing, and it is set to
0.2 in this case. This means that 20% of the data will be used for testing and the
remaining 80% will be used for training.
• random_state: This parameter is used to set the seed for the random number generator.
It ensures that the data is split in the same way every time the code is run.
g) Model validation :

The model validation was performed on the selected ML algorithms LRC, RFC, SVC, and
ensemble bagging classifier with the training data by using K-Fold crossvalidation. The
cross_val_score and cross_val_predict functions are imported from the
"sklearn.model_selection" module to evaluate the performance of each model in terms of cross-
validation score. The selected number of folds was 5. The current training dataset was divided
into k (k equal to 5) equal-sized subsets called "folds". The model was trained on 4 folds and
tested on the remaining one fold. This process is repeated k (k equal to 5) times, every time
one of the fold act as testing data and the rest will be training data over the selected ML model.
The cross_val_score() function was used to calculate the accuracy, precision, recall, F1, and
ROC_AUC scores for each model using a 5-fold cross-validation strategy. The
cross_val_predict() function was used to generate predicted probabilities for each sample in
the training set using a 5-fold cross-validation strategy. This process is repeated for each
selected ML algorithm.

Figure 5.2(g) : Flow chart for K-Fold cross validation

Training the models :

In this phase, the selected techniques LRC, RFC, SVC, and ensemble bagging classifier were
applied to the preprocessed data. To build these selected ML models the training dataset was
used. This involves calling the "fit" method on the selected algorithm and providing the input
features (x_train) and corresponding output labels (y_train) as parameters. The fit method trains
each model by adjusting its internal parameters to minimize the difference between the
predicted output and the actual output. After the training process was completed the models
are ready to make predictions on new, unseen data. These predictions can be made using the
"predict" method, which takes the input features of the new data as input and returns the
corresponding predicted output.

These selected models are imported from different sklearn libraries. The LRC was imported
from the "sklearn.linear_model" module. The RFC and ensemble bagging classifier were
imported from the "sklearn.ensemble" module. The SVC was imported from the "sklearn.svm"
module. The models included in the ensemble are LRC, RFC, and SVC. All three models are
trained using bagging which is a technique that involves creating multiple samples of the
training data set by random sampling with replacement. Each of these samples is then used to
train a model. The outputs of the individual models are combined to create a final ensemble
model. A voting classifier was created for the ensemble learning model using the
"VotingClassifier" module. The models’ list is passed to the VotingClassifier constructor,
along with the voting parameter set to ’soft’, which means the predicted probabilities are
averaged to produce the final prediction.

The motivation behind selecting the ensemble bagging classifier that combines multiple
models is to leverage the strengths of each model and reduce the impact of any individual
model’s weaknesses. Moreover, this ensemble bagging classifier was not used in any other
related works.

LRC is a linear classification algorithm that is often used as a baseline model due to its
simplicity and interpretability. It can capture linear relationships between features and the
target variable. By including LRC in the ensemble, we can benefit from its ability to identify
straightforward patterns and establish a baseline for comparison.

RFC is an ensemble learning method that combines multiple decision trees to make
predictions. It excels at capturing non-linear relationships and interactions among features,
making it a powerful tool for classification tasks. RFC can handle highdimensional data and
mitigate overfitting. By including RFC in the ensemble, we can harness its ability to capture
complex patterns and improve the overall predictive capability.

SVC is a powerful classification algorithm that aims to find an optimal hyperplane to separate
different classes. It can handle both linear and non-linear decision boundaries and is
particularly effective for high-dimensional data. By including SVM in the ensemble, we can
leverage its ability to handle complex data distributions and capture intricate decision
boundaries.
Testing the models :

The selected techniques LRC, RFC, SVC, and ensemble bagging classifier were used to make
predictions on the test data. The performance of each model is evaluated using various
classification metrics such as accuracy, precision, recall, F1 score, and ROC AUC score to find
the optimal model. These values are discussed in the further sections.

5.3) DFDs /ERDs (up to Level 2)

a) DFD (Data Flow Diagram):

i) Level 0: Context Diagram

Figure 5.3.a(i) : Context diagram

ii) Level 1: Decomposition Diagram

Figure 5.3.a(ii) : Decomposition program

iii) Level 2: Detailed Decomposition

Figure 5.3.a(iii) : detailed decomposition

b) E-R DIAGRAM :

Figure 5.3.b : E-R Diagram

 6) SYSTEM DESIGN

File/ Data Design:

Credit Card Approval Prediction insights through Comprehensive Data Analytics, emphasizes
leveraging CSV files for efficient data storage, manipulation, and integration using Python.
This project focuses on effective data management principles to ensure scalability, efficiency,
and maintainability. Key strategies include optimizing file design for seamless data processing
and enhancing the system's capability to provide actionable insights for restaurant operations
and decision-making processes.

6.1) File Design Considerations

a) CSV Format Choice:

• Structure: CSV (Comma-Separated Values) format is chosen for its simplicity and
compatibility with a wide range of tools and platforms.

• Flexibility: Each CSV file will represent a structured dataset, where each row
corresponds to a data record and columns represent different attributes or features.

• Delimiter: Comma (,) is typically used as a delimiter, but flexibility exists to choose
other delimiters if required (e.g., tab \t for TSV files).

b) Naming Conventions:

• Clear Naming: Files should be named descriptively to indicate their content and
purpose (e.g., dataset.csv, sales_transactions.csv).

• Consistency: Maintain consistent naming conventions across all CSV files within the
system to facilitate easier management and understanding.

c) Data Integrity and Validation:

• Schema Definition: Define and document the schema for each CSV file, specifying the
expected data types, constraints, and relationships (if applicable).

• Data Validation: Implement data validation checks during data ingestion to ensure
integrity and adherence to defined schema.

6.2) Data Design Strategies

a) Data Organization:

• Normalization: Organize data into normalized tables where possible, reducing

 redundancy and improving data consistency.

• Denormalization: Consider denormalization for performance optimization in read-

heavy operations where data retrieval speed is critical.

b) Indexing and Query Optimization:

• Index Usage: Utilize indexing on CSV files for faster querying and retrieval
operations, especially for large datasets.

• Query Optimization: Optimize queries by leveraging Python libraries like Pandas

for efficient data manipulation and filtering.

c) Handling Large Datasets:

• Chunking: Use Pandas’ ability to read and process CSV files in chunks to handle
large datasets that may not fit into memory entirely.

• Parallel Processing: Implement parallel processing techniques using libraries like

Dask for distributed computing on large CSV files.

6.3) Integration with Python

a) Python Libraries:

• Pandas: Use Pandas for data manipulation tasks such as reading CSV files, data
cleaning, transformation, and aggregation.

• CSV Module: Python’s built-in csv module provides efficient methods for reading
and writing CSV files, offering fine-grained control over parsing and handling.

b) Data Processing Pipelines:

• Pipeline Design: Design data processing pipelines in Python scripts or Jupyter

notebooks, incorporating steps for data ingestion, preprocessing, analysis, and
visualization.

• Modularization: Modularize Python scripts to promote code reusability and

maintainability across different stages of data processing.
 7) INPUT/OUTPUT FROM DESIGN

SCREEN DESIGN :

7.1) Pre-processing the data :

We first divide the preprocessing steps into three tasks:

• Converting the non-numeric data into numeric data.

• Split the given data into train and test sets

• Scale the feature values to a uniform range.

First, we will convert all the non-numeric values into numeric values. This is done because not
only it results in a faster computation but also many machines learning models (especially the
ones developed using scikit-learn) require the data to be in a strictly numeric format.

Figure 7.1: preprocessing the data

7.2) Data description and distribution :

Figure 7.2 Data description and distribution

Figure 7.2 : Density distribution plot of Age, Years Employed, Credit Score,
Income
7.3) Heatmap of Correlation matrix :

Figure 7.3: Heatmap of Correlation matrix

7.4) Sns Pairplot Of Whole Dataset :

Seaborn's pairplot function is a powerful tool for visualizing pairwise relationships between
variables in a dataset. It creates a matrix of scatter plots, where each subplot displays the
distribution of one variable on the y-axis against another variable on the x-axis. Additionally,
it can include histograms along the diagonal to show the marginal distribution of each variable.
 Figure7.4 : Sns Pairplot Of Whole Dataset

7.5) Histogram to VisualizeThe Distribution Of Data :

Figure7.5 : Histogram to VisualizeThe Distribution Of Data

7.6) Heatmap For Null Values :

Figure 7.6 : Heatmap For Null Values

7.7) Map Chart Of Dataset :

Figure 7.7: Map Chart Of Dataset

7.8) Scatterplot Chart :

Figure 7.8 : Scatterplot chart

7.9) Scatterplot Chart b/w Income & Income Type:

Figure 7.9: Scatterplot Chart b/w Income & Income Type

7.10) Scatterplot Chart b/w Income & Own Property:

Figure 7.10: Scatterplot Chart b/w Income & Own Property

7.11) Scatterplot Chart b/w Family Status & Family Member:

Figure 7.11: Scatterplot Chart b/w Family Status & Family Member

7.12) Histogram Chart Of Employment In Days :

Figure 7.12 : Histogram Chart Of Employment In Days

7.13) Countplot Chart Of Name Income Type :

Figure 7.13: Countplot Chart Of Name Income Type

7.14) Pie Chart Of Name Income Type :

Figure 7.14: Pie Chart Of Name Income Type

7.15) Pie Chart Of Name Education Type :

Figure 7.15: Pie Chart Of Name Education Type

7.16) Time Plot Chart :

Figure 7.16 : time plot chart

7.17) Population Chart :

Figure 7.17: Population Chart

7.18) Scatter Plot Chart :

Figure 7.18: Scatter plot

 8) IMPLEMENTATION AND SYSTEM TESTING FOR
EACH TASK

8.1) SYSYTEM TESTING

Rigorous system testing is crucial for ensuring the reliability and fairness of your credit card
approval prediction model. Here's a breakdown of key testing approaches for your data
analytics project:

a) Unit Testing:

• Focuses on individual components of your system, particularly the code responsible for
data manipulation, model training, and prediction generation.
• Test cases should verify the code's functionality with various input scenarios (e.g.,
missing values, invalid data types) to ensure it behaves as expected.
• Unit testing frameworks (e.g., Python's unittest) can help automate and streamline this
process.

b) Integration Testing:

• Evaluates how different components of your system interact and function together.
• Test cases should simulate real-world data flow from data acquisition and preprocessing
to model prediction and potentially integration with the application system (if
applicable).

c) Performance Testing:

• Assesses the system's ability to handle real-world workloads in terms of speed,

efficiency, and scalability.
• Test cases involve simulating high volumes of credit card applications to evaluate
processing times and response rates.
• This helps identify potential bottlenecks and ensures the system can handle the expected
application volume without compromising performance.

d) Fairness Testing:

• A critical aspect for credit card approval models, focusing on mitigating potential biases
in the data or the model itself.
• Test cases involve analyzing model predictions across different demographic groups
(e.g., race, gender) to identify any disparities in approval rates.
• Techniques like fairness metrics (e.g., Equal Opportunity Score) and counterfactual
analysis can be used to assess and mitigate bias.

e) Security Testing:

• Evaluates the system's security posture to protect sensitive applicant data (e.g., income,
credit score).
• Test cases simulate potential security threats like data breaches or unauthorized access
attempts.
8.2) SYSTEM IMPLEMENTATION

a) Development Environment:

• Hardware:
o Consider your project scale. For a basic setup, a personal computer with a mid-
range processor (e.g., Intel Core i5) and at least 8GB of RAM would suffice.
For larger datasets, consider workstations with more powerful processors (e.g.,
Intel Core i7) and 16GB+ RAM or cloud-based virtual machines for scalability.
• Software:
o Python: The primary programming language for data science.
o Essential Libraries: pandas (data manipulation), NumPy (numerical
computations), scikit-learn (machine learning algorithms), matplotlib/Seaborn
(data visualization).
o Development Environment: Jupyter Notebook or similar interactive
platform for coding and analysis.

b) Data Pipeline:

• Data Acquisition:
o Develop a script to extract data from your chosen source (historical applications,
public datasets).
o Ensure data anonymization and privacy compliance practices are followed.
• Data Preprocessing:
o Write Python code to handle missing values (imputation techniques or
removal).
o Implement outlier treatment (winsorization or removal).
o Encode categorical variables (one-hot encoding or label encoding).
o Apply feature scaling techniques (standardization or normalization) for model
compatibility.

c) Model Training & Selection:

• Model Training Script:

o Develop a script to split data into training and testing sets (e.g., 70/30 split).
o Implement hyperparameter tuning techniques (GridSearchCV) to optimize
model performance.
o Train different machine learning models (Logistic Regression, Random Forest,
XGBoost) using the training data.
• Model Selection Script:
o Evaluate model performance on the testing set using metrics like accuracy,
precision, recall, and F1 score.
o Choose the model with the best overall performance based on your evaluation
criteria.
d) Model Deployment :

• API Development:
o If integrating the model with the application system, create an API (using
frameworks like Flask or Django) to facilitate data exchange between the
application and the model.
o The API would receive applicant data, process it through the chosen model, and
return the predicted creditworthiness (approved/denied) along with a confidence
score (optional).

e) Monitoring & Feedback :

• Develop scripts to monitor model performance over time, tracking accuracy, fairness
metrics, and potential drift due to changing data or economic conditions.
• Incorporate feedback mechanisms for human experts to review predictions and
suggest updates for the model, ensuring responsible decision-making.
 9) SYSTEM REQUIREMENTS (HARDWARE/SOFTWARE)

9.1) Basic Setup (Small Dataset, Individual Project):

• Hardware:
o Personal computer with a mid-range processor (e.g., Intel Core i5 or AMD
Ryzen 5) and at least 8GB of RAM.
o Sufficient storage space (at least 250GB SSD) to accommodate your dataset and
project files.
• Software:
o Python (programming language) with essential data science libraries:
▪ pandas (data manipulation and analysis)
▪ NumPy (numerical computations)
▪ scikit-learn (machine learning algorithms)
▪ matplotlib/Seaborn (data visualization)
o Jupyter Notebook or similar interactive development environment for coding
and analysis.

9.2) Moderate Setup (Medium Dataset, Team Project):

• Hardware:
o A workstation with a powerful processor (e.g., Intel Core i7 or AMD Ryzen 7)
and 16GB or more RAM to handle larger datasets efficiently.
o Consider cloud-based virtual machines with adjustable configurations for
scalability if needed.
• Software:
o Same core Python libraries as the basic setup, potentially including additional
specialized libraries depending on your chosen algorithms (e.g., TensorFlow or
PyTorch for deep learning).
o Version control system (e.g., Git) for collaborative development and code
management.
 10) DOCUMENTS

This document details the development of a Machine Learning (ML) model to predict credit
card approvals, aiming to streamline the application process and enhance decision-making for
financial institutions.

10.1 Problem and Motivation:

Traditional creditworthiness assessment methods can be time-consuming and lack the accuracy
to capture the nuances of applicant profiles. This project aimed to leverage Machine Learning
to develop a more efficient and reliable system for predicting credit card approvals.

10.2 Data Acquisition and Preparation:

Anonymized data from historical credit applications (or publicly available datasets) formed the
foundation of our project. The data encompassed various features like applicant demographics,
credit history, and financial information. Rigorous cleaning techniques addressed missing
values, outliers, and inconsistencies, ensuring data quality for model training. Categorical
variables were transformed into numerical representations suitable for machine learning
algorithms.

10.3 Exploratory Data Analysis (EDA):

We conducted an in-depth exploration of the data to understand the relationships between

features and creditworthiness. Visualizations like histograms and boxplots revealed the
distribution of key features (e.g., income, credit score) across approval categories
(approved/denied). Correlation analysis identified potential connections between features that
might influence creditworthiness. Additionally, statistical measures like mean, median, and
standard deviation provided a summary of the data's characteristics.

10.4 Machine Learning Model Development:

Several machine learning algorithms, such as Logistic Regression, Random Forest, and
XGBoost, were evaluated for their suitability in predicting credit card approvals. We employed
a training and testing set approach, splitting the data to train the model and assess its
performance on unseen data. Hyperparameter tuning techniques were utilized to optimize the
performance of each model on the training set, preventing overfitting. The model selection
process considered metrics like accuracy, precision, recall, and F1 score, ultimately choosing
the model with the most balanced and effective performance in predicting credit card
approvals.

10.5 Results and Discussion:

The project successfully developed a credit card approval prediction model with a testing
accuracy of X%. This potentially translates to a significant improvement in accuracy compared
to traditional methods, leading to faster processing times and more informed credit decisions.
While achieving this level of accuracy is a success, we acknowledge the importance of
continuous monitoring and fairness assessments to ensure the model's performance remains
unbiased and ethical.
 11) SCOPE OF THE PROJECT

This project aims to develop a Machine Learning model to predict credit card approvals. We'll
start by collecting anonymized credit card application data, ensuring privacy and security. After
cleaning and preparing the data for machine learning algorithms, we'll explore the information
to identify patterns related to applicants and approvals. Various models like Logistic
Regression and XGBoost will be trained and compared to choose the one with the highest
accuracy on unseen data. The chosen model can then be deployed as an API for real-time
predictions within the credit card application system (optional). Continuously monitoring the
model's performance and fairness is crucial, along with incorporating new data and expert
feedback for ongoing improvement. Finally, robust documentation ensures clear
communication and future reference for this project.

11.1) Data Acquisition and Preparation

• Data Sources:
o Identify the source of your data. Options include:
▪ Historical credit card application data from your institution (anonymized
and privacy regulations followed).
▪ Publicly available, anonymized credit card application datasets relevant
to your target population.
o Secure data access and anonymize sensitive information (e.g., Social Security
Numbers).
• Data Description:
o Define the features (variables) in your dataset, including:
▪ Applicant demographics (age, income, employment status)
▪ Credit history (credit score, loan history, delinquencies)
▪ Debt-to-income ratio
▪ Account information (existing accounts, account balances)
o Define the target variable: application status (approved/denied).
• Data Preprocessing:
o Handle missing values using techniques like imputation (filling in missing data)
or removal.
o Identify and address outliers (extreme data points) that might skew the model.
o Encode categorical variables (e.g., job title) into numerical representations
suitable for ML algorithms.
o Apply feature scaling or normalization if necessary to ensure all features are on
a similar scale.

11.2) Exploratory Data Analysis (EDA)

• Visualizations:
o Create charts and graphs to understand the distribution of features (histograms,
boxplots).
o Analyze relationships between features (correlation matrix) that might influence
creditworthiness.
o Visualize the distribution of the target variable (approved/denied) to identify
potential imbalances (e.g., more denied applications).
• Statistical Analysis:
 o Calculate summary statistics (mean, median, standard deviation) for numerical
features.
o Analyze the target variable distribution to understand the proportion of
approved and denied applications.

11.3) Machine Learning Model Development

• Model Selection:
oChoose appropriate ML algorithms for classification tasks, such as:
▪ Logistic Regression (baseline model) - Simple and interpretable.
▪ Random Forest - Robust and handles complex relationships.
▪ Gradient Boosting Machines (XGBoost) - Powerful and often achieves
high accuracy.
o Consider factors like model interpretability, computational efficiency, and
potential for overfitting when choosing your models.
• Model Training and Evaluation:
o Split your data into training (70-80%) and testing (20-30%) sets.
o Train the chosen models on the training data, optimizing their hyperparameters
(model configuration settings) using techniques like GridSearchCV to achieve
the best performance on the training set (avoid overfitting).
o Evaluate model performance on the unseen testing set using metrics like:
▪ Accuracy: Proportion of correctly predicted application statuses.
▪ Precision: Ratio of true positives (correctly predicted approvals) to all
predicted approvals.
▪ Recall: Ratio of true positives to all actual approvals (identifies how well
the model captures true approvals).
▪ F1 Score: Harmonic mean of precision and recall, providing a balanced
view of model performance.
o Compare the performance of different models and select the one with the best
overall metrics on the testing set.

11.4) Model Deployment :

• Develop an API (Application Programming Interface) to integrate the chosen model

with the credit card application system.
• The API would receive applicant data from the application system, process it through
the model, and return the predicted creditworthiness (approved/denied) along with a
confidence score (optional).

11.5) Project Deliverables:

• A well-documented Machine Learning model for credit card approval prediction.

• A report outlining the project methodology, data analysis, model development process,
and achieved performance.
• Code for data preprocessing, model training, and evaluation (with clear comments).
• (Optional) API for deploying the model into the credit card application system.
11.6) Project Success Criteria:

• The developed model achieves a desired level of accuracy in predicting credit card
approvals on the testing set.
• The model demonstrates fairness and avoids biases in predictions. This might involve
fairness testing and mitigation strategies.
• The project adheres to data privacy regulations and security best practices.
• The project documentation is clear, concise, and informative for future reference.

11.7) Limitations and Future Work:

• The model's performance might be limited by the quality and representativeness of the
training data.
• Potential biases in the data can lead to biased predictions. Regular fairness testing and
mitigation strategies are crucial.
 12) BIBLIOGRAPHY

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https://scikit-learn.org/stable/modules/linear_model.html#logistic-regression

[2] “Credit Card Approvals (Clean Data).” [Online]. Available: Credit Card Approval
Prediction (kaggle.com)

[3] “sklearn.model_selection.StratifiedKFold.” [Online]. Available: scikit-learn

[4] “American Express,” Apr. 2023, page Version ID: 1151973790. [Online]. Available:
American Express - Wikipedia

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[6] “Discover Financial,” Mar. 2023, page Version ID: 1146279575. [Online]. Available:
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[7] “Ensemble learning,” Apr. 2023, page Version ID: 1151030544. [Online]. Available:
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[8] J. Lee and K.-N. Kwon, “Consumers’ Use of Credit Cards: Store Credit Card Usage as an
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