Data analysis project Coursera (original) (raw)
Lending Club is an online financial community that brings together creditworthy borrowers and savvy investors so that both can benefit financially [1]. It allows its members to directly invest in and borrow from each other and so avoid the cost and complexity of the banking system. On the Lending Club site there are several files that contain complete loan data, including the current loan status and latest payment information. [2] The data used in this analysis represents a sample of 2,500 peer-to-peer loans issued by the Lending Club explained through 14 variables such as: monthly income, amount requested, FICO range (a range indicating the applicants FICO score) [3], inquiries in the last six months etc. The goal of this analysis is to establish if there is any correlation between the outcome variable – the interest rate of the loans – and the other variables especially considering the FICO score, which is a measure of the creditworthiness of the applicant. In this project we performed an analysis to determine if there was a significant association between the interest rate and the FICO score. Using exploratory analysis and standard multiple regression techniques we show that there is a significant negative relationship between the interest rate and the FICO score, even after adjusting for important confounders such as the length of the loan, the amount funded by the investors and the amount requested by the borrowers. Our analysis suggests that there is a significant, negative association between Interest Rate and FICO score. Our analysis estimates the relationship using a linear model relating one percent of interest rate to one unit of FICO score. There appears to be a strong inverse relationship between the two variables. Our results suggest that there are other variables such as loan length, amount requested by the borrower and amount funded by the investors which are associated with both interest rate and FICO score. Including these variables in the regression model relating interest rate to FICO score improves the model fit, but does not remove the significant positive relationship between the variables.
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