User:Sean3000/sandbox

The Information Value is a method of Feature selection widely used in credit scoring. The formula is:

$\sum _{i=1}^{n}\left(DistrGood_{i}-DistrBads_{i}\right)\times ln\left({\frac {DistrGood_{i}}{DistrBads_{i}}}\right)$

Where ‘Distr Bad’ is the number of defaulting customers in a category over the total number of defaulting customers in a portfolio, while ‘Distr Good’ is the number of non-defaulting customers in a category over the total number of non-defaulting costumers.

For example, if the category is age band, it may be calculated as follows:

Age	Total Count of Customers	Count of Bads	Count of Goods	Distribution of Bads	Distribution of Goods	Information Value
<18	2,000	140	1,860	3.65%	3.86%	0.01%
19<25	5,000	960	4,040	25.00%	8.39%	18.14%
26<35	10,000	1,080	8,920	28.12%	18.52%	4.01%
36<50	12,000	900	11,100	23.44%	23.05%	0.01%
51<65	13,000	500	12,500	13.02%	25.96%	8.92%
66<70	7,000	200	6,800	5.21%	14.12%	8.89%
71+	3,000	060	2,940	1.56%	6.10%	6.19%
Total:	52,000	3,840	48,160	100.00%	100.00%	46.17%

Thus for the first row ("<18"), the Count of Bads is the Total Count of Customers - Total Count of Bads, (2000-140), the distribution of Goods is