For this project I was required to create a credit risk scorecard witht the 4 most relevant variables, so I binned all variables and selected them by chi2 and IV.
I ran the logistic and linear regressions with dummies for each bin of these variables (so if Var1 had 3 bins, I would include 2 dummies for it). I found that some of these bins were non significant, so I wonder, what should it be done it that case? Cause in my opinion it doesn't make much sense to "remove" a bin from a variable.
As an example, let's say the variable is Purpose (of the loan)
, and the bands are the following:
a) car/electronics
b) house
c) furniture/remodeling
d) education/business
In my regression I would include dummies for bands a, b and c (so band d is case 0). Let's say that the dummy for band b is non significant, with a very large p-value, what can be done in that case? Normally I would remove that variable, but since this is technically part of one variable, what is the procedure?