Trending Credit Data

What is Trending Credit Data?

Last year there was a change made to way mortgage bankers view a loan applicant’s credit risk. It used to be that if you paid your revolving (credit card) balances a few months prior to a loan or mortgage application it would reflect a much lower credit risk borrower. Some banks use trending Credit Data was added as a method to gain more insight into a borrower’s credit management skills when applying for mortgage products. With this information, underwriters have a more in-depth view of your paying patterns.

Are you a revolver or transactor?

  • Revolver – An individual who carries a balance on their credit card account(s) month-to-month.
  • Transactor – An individual who pays of their entire credit card bill each month by the due date.

It used to be that transactors would be penalized for paying off their bills each month but in recent years credit reporting has switched gears and starting rewarding transactors for their healthy payment habits. So if you’re a revolver, your scores will start to drag if your revolving balance goes beyond 7 to 10% of the total aggregate limit. In fact, all three major credit bureaus, Experian, TransUnion, and Equifax, predict that revolvers are 3x more likely to default on new credit cards and 5x more likely to default on current credit cards than transactors.

How trending credit data will hurt revolvers

The Federal National Mortgage Association (FNMA or Fannie Mae) along with Equifax and TransUnion, did the initial launch of the trending credit data format to their consumer credit reports in June 2016. Lenders are required to use this data before approving borrowers for a mortgage. Craig Crabtree, general manager of Equifax Mortgage Services was quoted, “…Fannie Mae is helping to make the home mortgage market smarter, safer, and open to more consumers…trended data will help improve the evaluation of risk and reward the responsible use of credit…”

In the past, lenders were only shown a “snap-shot” of the borrower’s current balance on revolving credit which allowed borrowers to pay off balances a few months prior to applying for a mortgage with little to no penalization. This new timeline data capture gives lenders an in-depth understanding of a consumer’s financial situation and payment behavior over the span of two-years. It will allow lenders to better evaluate whether an individual can be trusted to make their mortgage payments on time, how large of a mortgage to approve, what interest rate to give them, or whether they should be denied altogether.

Trending data has the chance to help individuals who have an extended history of proper credit management by potentially giving them access to better interest rates and loans, but conversely, it also has the chance to hurt those who only pay the minimum each month.

What financial institutions are now able to see

  • Whether you are paying off debt or adding to it (while only paying the minimum).
  • Changes to payment patterns – If a borrower suddenly starts only paying their minimum it indicates that they will soon default.
  • The dollar amount that you spend each month. Lenders want to see what your discretionary income is each month.
  • If a borrower has a high utilization rate it will negatively impact their score, but with the trending data lenders can look deeper, and see how well an individual handles their high utilization rate. For instance, if a customer is using 40 – 50% of their limit, but has never defaulted or had any ill effects, then the lender may decide to approve them as a lower risk. Since this shows that the borrower is capable of managing their credit.

In addition to credit report enhancements, Fannie Mae is two platforms that will consolidate and improve data availability for consumers and lenders. Fannie Mae Connect was launched in November 2015, it’s a source for consumers and business partners to use for accessing data and analytics – users now have an online platform to visit and the option to receive email notifications. Lenders are also getting an upgrade, they will no longer have to use a manual process when underwriting loans – Fannie Mae implemented Desktop Underwriter in September of 2016. This system will eliminate the need for borrower’s to provide income documentation for verification; lenders will be able to access income verification through the Desktop Underwriter platform. Fannie Mae has said that eventually Desktop Underwriter may be able to offer other income verification services like bank statements and tax returns.

Experian, Equifax, and TransUnion are always looking for new ways they can categorize consumers that goes beyond revolvers and transactors. They are using alternative means to evaluate payment history for those who do not have an extended credit history, which allows bureaus to score a larger portion of the population. These alternative data sources include – checking/debit account information, property / tax records, and rent / utility payments. This will end up helping those without traditional means for credit who were once considered “unscorable”.

Now is the time to change your spending and payment habits, for many people that is easier said than done, even by keeping your balances as low as possible you’re helping your credit scores and reflecting as a more responsible borrower. If you plan to start shopping for a home soon, it’s especially important to configure a financial plan that will let you pay off those credit card balances. The last thing anyone wants is to find their dream home and have it cost them an additional $100,000 + in interest or be denied from purchasing the home altogether. Plan ahead and monitor your reports, if you see any inconsistencies speak with one of our FICO Certified Credit Experts before calling the bureaus and taking credit restoration into your own hands. Most individuals who try to repair their own credit end up perjuring themselves and destroy any chances for successful credit repair.


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