what are effects of working with categorical dataset
You need to distinguish a few problems here. How well can your data classify some outcome, what features should be used, how to deal with imbalanced classes.

Categorical features are not a problem per se. In the current stage, feature selection might be an issue. Thus, use logit with lasso or ridge to shrink features which are not too helpful (happens automatically). Also dummy/one-hot encoding would be worth a try (jointly with lasso).

https://scikit-learn.org/stable/modules/generated/sklearn.linear_model.Lasso.html

https://scikit-learn.org/stable/modules/generated/sklearn.linear_model.RidgeClassifier.html