Answer for Credit Risk Modeling

https://365datascience.com/dwqa-answer/answer-for-credit-risk-modeling/ -

Hi Humming,

Thanks for reaching out!

1. We must split the data prior to preprocessing. The main reason for that is that we use the train data to calculate the WoE. Then based on that we make our conclusions regarding coarse classing and fine classing.
   

   If we used the test data there, too, then we would have ‘peaked into the test data’ and then used the test to make decisions about the training dataset. This is definitely not recommended.



2. Not quite sure what you mean here. Isn’t RENT one of the categories of home ownership?

Best,

The 365 Team

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