Trended Data Credit Reports Explained
As we like to say “Everyone is a number, so you might as well have a good one”. Lenders have based decisions to approve or deny on your credit score number. Even employment and insurance rates can be based on your credit score! Now with Trended Data, a person’s credit reports are going to have more in depth information than ever for lenders to base credit decisions.
So what is trended data?
Just like fashion trends come and go, so does your credit profile. Your balances and payment habits ebb and flow over time like a trend. Trended data provides historical information on the balances, previous scheduled payments, and the actual payment made each month. This is additional information which credit reports did not reveal previously. Before trended data, while looking at a card on the report, lenders had no idea what the balances on credit looked like past one month. Creditors can now tell things such as the following: trended data credit reports and mortgage loan approvals
- How much your balance was every month in the past
- How much your required payment was for any month
- How much you actually paid in relation to your required payment
- What you spend each month
- How your credit behavior is changing over time – Have you been paying down debt or accumulating debt lately?
None of this was available before unless you happened to have copies of previous credit card statements. Keep in mind that not all creditors will report trended data. So only the accounts which provide this information will show on your credit report.
What Does Trended Data Say About a Borrower?
The main thing this new feature shows would be how well a borrower manages their credit cards or lines of credit. A person who uses revolving accounts conservatively will be a lower risk and would have a better chance of approval. Conservative means using a lower percentage of the credit line and paying it off each month or at least quickly. Conversely, if someone keeps a high balance compared to the credit limit but pays just the minimum payment required, this would be a higher risk borrower.
Lets say you had experienced a job lay off in the past and acquired some debt, but since then you have been aggressively paying down debts. This would now be shown on your credit report and would look very favorably on your approval. Yet if you have been consistently increasing your balances on cards over the last 12 months and paying the minimums, you would be trending in the wrong direction. This would hurt your chances of approval.
Let’s Look at a Comparison Case Pre and Post-Trended Data:
Billy B. Buyer has 3 credit cards that each have $5000 credit limits and they have $4800 balances a piece. He carries this same balance for the previous 12 months. Then he decides he wants to buy a house, borrows money from his mother, and pays his cards all down to $500 each. A month later the mortgage lender pulls his credit and the only thing that shows is he has $500 balances on each card which is only 10% of his credit limits. Results: Billy is a great credit risk because the lender only knows that Billy 1) pays on time, 2) Billy has a very low balance compared to the limit right now, 3) So Billy is a great credit risk because we can only see his current balance. You can see that lenders pre-trended date could only see the current balance and not the balance history.
But now with trended data, we would know that Billy has been maxed out for 12 months, paid the minimum payment, and paid down his cards dramatically one month ago. So a lender would obviously ask, “where did this extra $12,900 come from?” and the answer would be a loan from mom. This may be an issue on a mortgage since he borrowed the money from a person. You can see why this is important information and could help or hurt a borrower depending on the overall use of credit.
Do keep in mind that even though there is more data being evaluated by the credit bureaus and lenders, this does not affect your actual credit scores. Scores will be calculated the same way as they have been. Below is an interesting chart to see who is statistically more likely to be delinquent on a debt.
|Research has shown that borrowers who||are||than borrowers who|
|Never exceed their limit||75% less likely to become delinquent||Exceeded their credit card limit in the last 12 months|
|Pay off their credit card every month||60% less likely to become delinquent||Only make their minimum payment each month|
Chart provided by Fannie Mae FAQ on Trended Data. Source
How will Trended Data Affect Mortgage Loan Approvals?
We are being told that credit decisions for conventional loans only ran through Fannie Mae’s automated system DU will be affected by trended data credit reports. This data will not be used to affect credit decisions in DU on FHA or VA loans though at this time. Freddie Mac will probably start using this feature in the near future on conventional loans as well we are told.
If you have credit questions, let us know as we are glad to help!