Machine Learning for Individual Credit Risk Assessment: A Systematic Literature Review of State-of-the-Art Methods, Challenges and Perspectives

Abstract

Credit risk assessment forms a cornerstone of banking risk management and the stability of the wider financial system. Over the past decade, the rapid development of machine learning (ML) techniques has substantially enhanced traditional credit risk assessment methodologies. ML has now emerged as a core technological pillar for the banking sector, strengthening risk identification capabilities, optimising credit decision-making, and advancing financial inclusion. Conventional credit scoring models, dominated by logistic regression (LR) and scorecard approaches, offer inherent strengths in interpretability and regulatory compliance. However, constrained by their linear assumptions, these methods struggle to capture complex non-linear relationships within credit data and deliver insufficient predictive accuracy for the “credit-invisible” population lacking formal credit histories. This paper presents a systematic literature review (SLR) of ML applications in credit risk assessment (CRA), covering publications from January 2016 to May 2026. A total of 894 papers were retrieved from five digital libraries, and following a rigorous multi-stage screening process, 129 studies were selected for final inclusion. Our analysis reveals that tree-based ensemble models and deep learning (DL) architectures predominate in contemporary research in this field. Meanwhile, post hoc explanation methods and machine learning operations (MLOps) are gaining significant traction as solutions to address fairness, transparency, and system maintenance challenges in real-world production environments. We synthesise prevailing methodologies into a unified end-to-end credit risk modelling framework spanning data preprocessing, feature engineering, model training, evaluation, and operational deployment. Through a critical assessment of the advantages, limitations, and inherent trade-offs of existing approaches, this SLR not only identifies current research gaps and future directions for the academic community, but also provides practical guidance for the banking sector to build compliant, fair, and efficient intelligent risk assessment systems.