An optimization problem has to be solved by adjusting the threshold and seeking the optimum in order to balance the trade-off between the decrease in revenue and a decrease in cost.
If “Settled” is described as good and “Past Due” is described as negative, then utilizing the design of this confusion matrix plotted in Figure 6, the four areas are split as real Positive (TN), False Positive (FP), False bad (FN) and real Negative (TN). Aligned with all the confusion matrices plotted in Figure 5, TP is the loans that are good, and FP may be the defaults missed. We have been keen on those two areas. To normalize the values, two widely used mathematical terms are defined: real Positive Rate (TPR) and False Positive Rate (FPR).