Alternative Data in Credit Scoring: Quantifying the Information Loss Using Kullback-Leibler Divergence

Key Points

• The aim is to assess the amount of information lost when using alternative data for credit scoring compared to traditional methods.
• Utilized Kullback-Leibler divergence to measure information loss from alternative data sources.
• Analyzed data sets to compare traditional and alternative approaches to credit scoring.
• Identified a measurable loss of information when alternative data is used.
• Quantified differences in outcomes, emphasizing potential gaps in credit decision-making.