What is Trended Credit Data? Credit Scores Look Deeper.

What is trended credit data?

Fannie Mae made a big announcement last week regarding their desktop underwriting system. In 2016 they are going to start using trended credit data. You may not have heard this term before but trended credit data is really looking at your utilization ratio and they’re looking further back in credit history than they have in the past. This is primarily because Fannie believes trended credit data is a better predictor of someone’s ability to repay a debt.

What is trended credit data really looking at?

It’s really looking at how consumers are paying down revolving balances every month, are they transferring revolving balances between credit cards, are they someone who leaves the balance high and just pays the minimum. What Fannie is trying to predict is will a borrower pay this mortgage back and how consumers carry balances on their credit cards is a very good indicator of whether or not they are ultimately going to repay a mortgage loan in addition to credit cards.

How will this change impact mortgage industry?

In the past when people try to get loan ready, many times they pay down revolving balances.  That is good advice, 5 – 9 percent, if you want to watch more videos on that click here, paying down your revolving balances to 5-9 percent gives consumers the best possible score. It is a  quick way to way to improve consumers scores without the danger of hurting consumers credit score.

Another very important thing to consider is that trended credit data is evaluating consumer’s balances every month on the reporting date. The day the creditor sends the data to the repository, that’s the only day that the repositories get the balance information from the creditors.

If consumers are not paying their balances down before that date they are going to show much higher utilization ratio than they would otherwise. It could make it harder for people to recover from bad credit habits. I think that’s the bottom line it will be even more difficult for people who have bad credit habits. It be more difficult for borrowers to increase their credit score quickly.

There’s one more wrinkle in this announcement from Fannie and Freddie. If they are going to use trended credit data and we are all using FICO5 score. The FICO5 score that we use now is not going to integrate that trended data in to the new underwriting score. If we’re all pulling FICO5 credit scores and when we register the loan with Fannie and Freddie they’re going to have a shadow credit score in the background for DU underwriting?

I don’t think so.

I think what will happen is when Fannie Mae announces this move over to trended credit data. They will finally accept an updated version of the FICO® score.  Mortgage lenders know that FICO5 was developed over ten years ago. There are newer FICO scores FICO8 & FICO9 are out and an improvement over FICO5. Fannie has never accepted anything newer than FICO5. I think a move to a newer version of FICO® score is a smart move. Then accepting VantageScore as mortgage lenders all know Vantage is now on the same range as FICO® (300-850) and VantageScore integrates rental data into their score. FICO® to date, doesn’t include rental data.

Fannie Mae may be more attune to accepting vantage at that time. I think more announcements are to come and that would be pretty big news and you definitely have to stay tuned because as soon as that happens, I’ll let you guys know. I expect big changes from Fannie Mae if they do move to an updated version of the FICO® score I hope that happens soon.

If you want to see more videos about credit and credit scoring check these out at www.thecreditguy.tv. If  you are a mortgage lender please share this on your Facebook or LinkedIn page.   If you have any questions, leave them down below I’d be happy to answer them.

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Go to www.getloanready.com to find other ways to improve your credit score. I’m Dave Sullivan here for the credit guy TV so you with a little bit me we’re going to change the credit industry thank you

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