ANALYTICS REPORT

TO: JOHN MCCLINTOCK

FROM: OSAMAH BA HAMID
SUBJECT: DUMMY VARIABLE REGRESSION
DATE: NOVEMBER 13, 2023

Introduction
This document presents a detailed analysis of credit card data from Taiwan, aiming to
shed light on factors influencing credit limits and the likelihood of payment default. The purpose
is to assist the company in understanding demographic impacts on credit-related outcomes and
improve decision-making processes. The report first explores gender disparities, revealing that
females, on average, have a $363.22 higher credit limit than males. Educational attainment also
plays a role, with high school graduates facing a $1140.98 reduction compared to university
degree holders, while those with graduate degrees enjoy a $2319.57 increase. Additionally, age
and marital status interact intricately, influencing credit limits differently for single and married
individuals. The predictive model achieves an R^2 of 11.86%, with a standard error of $4029.06,
providing insights that can inform credit limit assignments and risk assessment strategies.

Data Analysis
1) Credit Limit:

̂
𝐶𝑟𝑒𝑑𝑖𝑡 𝐿𝑖𝑚𝑖𝑡 = 3353.72 + 363.22(𝐹𝑒𝑚𝑎𝑙𝑒 (𝑑)) − 1140.98(𝐻𝑖𝑔ℎ 𝑆𝑐ℎ𝑜𝑜𝑙 (𝑑))
+ 2319.57(𝐺𝑟𝑎𝑑𝑢𝑎𝑡𝑒 𝑆𝑐ℎ𝑜𝑜𝑙 (𝑑)) − 2974.02 (𝑆𝑖𝑔𝑛𝑙𝑒 (𝑑))
+ 66.92(𝑆𝑖𝑛𝑔𝑙𝑒 (𝑑) ∗ 𝐴𝑔𝑒) + 51.10(𝐴𝑔𝑒)

Interpretation:

• Females have a credit limit $363.22 higher than males, on average and all else constant

• Those with a high school degree have a credit limit of $1140.98 lower than those with a
university degree, on average and else constant.

• Those with a graduate school degree have a credit limit of $2319.57 higher than those
with a university degree, on average and else constant.

• At zero years old, single people would have a credit limit of 2974.02 lower than married
people, on average and all else constant.

• For single people, as age increases by 1 year, credit limit increases by $66.92 more than
for a married person, on average and all else constant.

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 • For married people, as age increases by 1 year, credit limit increases by $51.10, on
average and all else constant.

• 𝑅 2 : we are 11.86% of the way towards perfectly predicting Credit Limit.

• Standard Error: Predictions of Credit Limit using this model are off by an average
$4029.06.

2) Chance of Defaulting:

̂ = 0.23 + 6.67𝐸-06(𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐵𝑖𝑙𝑙 𝐴𝑚𝑜𝑢𝑛𝑡)

𝐷𝑒𝑓𝑎𝑢𝑙𝑡
− 0.00017(𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑃𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑃𝑎𝑦𝑚𝑒𝑛𝑡 𝐴𝑚𝑜𝑢𝑛𝑡) + 0.00087(𝐴𝑔𝑒)
− 0.030 (𝐹𝑒𝑚𝑎𝑙𝑒 (𝑑))

Interpretation:

• As Average Bill Amount increases by $100, chance of defaulting increases by 0.067

percentage points, on average and all else constant.

• As Average Previous Payment Amount decreases by $100, chance of defaulting increases

by 0.017 percentage points, on average and all else constant.

• As you get older by 1 year, chance of defaulting increases by 0.00087 percentage points,
on average and all else constant.

• Females have a 2.98 percentage point lower chance of defaulting than males, on average
and all else constant.

• 𝑅 2 : we are 1.51% of the way towards perfectly predicting Chance of Defaulting.

• Standard Error: Predictions of Chance of Defaulting using this model are off by an
average of 41 percentage points.

Predicting Credit Limit for a 45-year-old, married, female

with a high school degree.

̂
𝐶𝑟𝑒𝑑𝑖𝑡 𝐿𝑖𝑚𝑖𝑡 = 3353.72 + 363.22(1) − 1140.98(1) + 2319.57(0) − 2974.02 (0)
+ 66.92(0 ∗ 45) + 51.10(45)
̂
𝐶𝑟𝑒𝑑𝑖𝑡 𝐿𝑖𝑚𝑖𝑡 = $𝟒𝟖𝟕𝟓. 𝟓𝟖

Predicting the Chance of Defaulting for someone who is 40 years

old, male, has an average bill amount of $800, and average payments of $820.

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 ̂ = 0.23 + 6.67𝐸-06(800) − 0.00017(820) + 0.00087(40) − 0.030 (0)
𝐷𝑒𝑓𝑎𝑢𝑙𝑡
̂ = 𝟓. 𝟑𝟒𝑬𝟎𝟗 𝒑𝒆𝒓𝒄𝒆𝒏𝒕𝒂𝒈𝒆 𝒑𝒐𝒊𝒏𝒕
𝐷𝑒𝑓𝑎𝑢𝑙𝑡

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Insights:
So far it does seem like we have evidence of gender bias. It's the opposite of what we
found with the Average Bill Amounts. The analysis reveals several intriguing insights into the
factors influencing credit limits. Notably, females tend to enjoy a credit limit $363.22 higher
than their male counterparts, holding other variables constant. Education plays a pivotal role,
with those holding graduate degrees experiencing a credit limit $2319.57 higher than university
graduates, while those with only a high school diploma face a reduction of $1140.98. Marital
status emerges as a significant factor, as single individuals begin with a credit limit $2974.02
lower than married counterparts, with the former experiencing a faster increase in credit limit per
year of age (+$66.92) compared to married individuals (+$51.10). Despite these insights, the
model's predictive capacity remains at 11.86%, with predictions exhibiting an average standard
error of $4029.06.

The analysis underscores key determinants of defaulting probabilities. A $100 increment

in Average Bill Amount corresponds to a 0.067 percentage point rise in the likelihood of default,
while a similar decrease in Average Previous Payment Amount leads to a 0.017 percentage point
increase. Aging contributes to a marginal uptick in default risk by 0.00087 percentage points per
year. Strikingly, gender plays a significant role, with females exhibiting a 2.98 percentage point
lower chance of defaulting compared to males. However, despite these insights, the predictive
capacity of the model stands at 1.51%, with predictions exhibiting an average standard error of
41 percentage points.

Conclusion

In this comprehensive analysis of credit card data from Taiwan, we unveil key insights into the
intricate dynamics influencing credit limits and payment default likelihood. Notably, females
demonstrate a $363.22 higher credit limit than males, while educational differences showcase
disparities, with high school graduates facing a $1140.98 reduction and graduate degree holders
enjoying a $2319.57 increase compared to university degree holders. The interaction between
age, marital status, and credit limits further enriches our understanding, providing nuanced
perspectives for tailored decision-making. These findings, achieved through rigorous statistical
modeling, offer actionable intelligence for refining credit policies and risk assessment strategies.
Should you have any inquiries or wish to discuss the implications of these results, feel free to
reach out to obahamid@arizona.edu or 928-373 8524.

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Appendix

Figure 1 –
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.344401914
R Square 0.118612678
Adjusted R Square 0.118394998
Standard Error 4029.064431
Observations 24301

ANOVA
df SS MS F Significance F
Regression 6 53072771156 8845461859 544.8940796 0
Residual 24294 3.94373E+11 16233360.19
Total 24300 4.47446E+11

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%

Intercept 3353.719446 186.508437 17.98159644 7.94082E-72 2988.151414 3719.287479
Female (d) 363.2168006 53.38251542 6.80404057 1.04089E-11 258.58378 467.8498212
High School(d) -1140.980022 75.13470409 -15.18579245 7.60167E-52 -1288.248674 -993.7113713
Grad School (d) 2319.566666 57.8855399 40.07160803 0 2206.10744 2433.025892
Single (d) -2974.019429 234.9259283 -12.65939205 1.29569E-36 -3434.488729 -2513.550129
Single (d) * Age 66.91955172 6.396344833 10.4621551 1.46075E-25 54.38232159 79.45678185
AGE 51.10283142 4.440965159 11.50714532 1.45742E-30 42.39826598 59.80739686
Osamah Ba Hamid

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Figure 2 –
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.123012675
R Square 0.015132118
Adjusted R Square 0.014969973
Standard Error 0.411797253
Observations 24301

ANOVA
df SS MS F Significance F
Regression 4 63.30287335 15.82571834 93.32468669 6.64348E-79
Residual 24296 4120.042256 0.169576978
Total 24300 4183.34513

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%

Intercept 0.227591111 0.01147998 19.82504461 8.79358E-87 0.205089643 0.250092579
Avg Bill 6.66509E-06 1.3433E-06 4.961719827 7.03436E-07 4.03213E-06 9.29805E-06
Avg Payment -0.00016774 9.23222E-06 -18.16893243 2.7819E-73 -0.000185835 -0.000149644
AGE 0.000865721 0.000290412 2.98101523 0.002875791 0.000296497 0.001434946
Female (d) -0.029772152 0.00543564 -5.477211953 4.36362E-08 -0.040426341 -0.019117963
Osamah Ba Hamid

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