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Hi,

Someone asked me a question on credit scoring model using WOE/IV only (without using logistic/OLS regression/CHAID).

Is it possible to give points to a variable based on its IV value and to the individual categories of that variable based on their WOE.

Suppose, the following is the output from the IV table, how would you use the WOE to give scores to them.

Asssumption - Total score is 100, significant vars - 4, Age is the most significant with IV - 0.46, other 3 vars have a lesser value than 0.46 but more than 0.25.

I thought we could weight a variable based on its IV value. Here Age's weight or score could be 100*0.46/(sum of IV of all 4 vars), which say, comes to 35.

Like this we can get IV weighted scores for each variable. But all the categories within a variable can't be assigned same weight. So, how to weight a variable's score within its categories. The best category can be given score equal to that of the variable and others be given scores lesser than that.

Do you think this is a correct approach and if so, how can get the scores for each category, 1,2,3,4,5 for age-group below ? Say - Group 5 as 35, 4 as 25, 3 as 20 and so on.

Age group | Good | Bad | Total | %Good | %Bad | %Good-%Bad | Ln(%Good/%Bad) | Marginal IV |

1 | 50 | 120 | 170 | 8.00% | 25.50% | -17.50% | -1.1604 | 0.20308535 |

2 | 75 | 110 | 185 | 12.00% | 23.40% | -11.40% | -0.6680 | 0.07615328 |

3 | 125 | 90 | 215 | 20.00% | 19.10% | 0.90% | 0.04348 | 0.00039137 |

4 | 175 | 80 | 255 | 28.00% | 17.00% | 11.00% | 0.49774 | 0.05475144 |

5 | 200 | 70 | 270 | 32.00% | 14.90% | 17.10% | 0.76480 | 0.13078134 |

IV | 0.4651628 | |||||||

Thanks,

Nitin

Tags: EVIDENCE, INFORMATION, IV, OF, REGRESSION, Risk, VALUE, WEIGHT, WOE, scorecard

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