Advancements in Credit Scoring, Profit Scoring, and Portfolio Optimization for P2P Lending

The Peer-to-peer (P2P) lending platform allows borrowers to connect directly with lenders outside traditional banking systems. Therefore, for the sustainability of these platforms, they must accurately assess the credit risk and profitability of the loans. Various credit scoring techniques, including Logistic Regression, neural networks, and ensemble methods, can be used to estimate the likelihood of borrower default. It is imperative to analyze the profit the lenders generated and enhance the credit scoring so that the investors face minimum loss. Once the profit analysis is done, then it is crucial to advise the investors about the portfolio of loans. This paper presents recent credit scoring, profit scoring, and portfolio optimization trends for P2P lending. We highlight the significant issues in incorporating machine learning models into credit scoring systems. The analysis emphasizes the need for a data-driven approach to perfecting lending practices, thus benefiting both borrowers and investors in the rapidly changing P2P landscape.