How Trended Credit Data Impacts Your Loan
Trended Credit Data takes your revolving credit habits over the last 24-30 months and creates and “average” credit picture for you. There are two types of credit applicants under this new framework – “Transactors” and “Revolvers”.
Key Takeaway: Your long-term payment history will impact your credit score and may even improve your FICO score, possibly leading to better interest rates and overall savings over the life of your mortgage. Read more below…
Millions of Americans have a FICO score. Millions more don’t. The question is, do you know what your FICO is and what it means? Do you know how your spending and payment history can impact your score? Do you know what the minimum acceptable score is to qualify for a home purchase? Did you know that changes have been made to the way that lenders look at your credit history? We’ll look at these questions in detail below. Look for additional posts on your FICO in the coming weeks–specifically Fannie Mae’s Loan Level Adjusters.
The Federal National Mortgage Association (FNMA) or as you may have heard them called, “Fannie Mae” moved to a new system in October of 2016, under which they would begin requiring mortgage lenders to use something called “trended credit data” as part of their underwriting guidelines (These “guidelines” are the rules written by Fannie Mae and are used by the majority of mortgage lenders to determine if you are eligible for a home loan.)
According to Fannie Mae’s VP of Credit Risk Analytics and Modeling, Eric Rosenblatt, “’trended credit data’ is historical data at a tradeline (credit line) level on several monthly factors, including: amount owed (balance), minimum payment due, and payment amount made.”
Fannie Mae, through a large-scale analysis of credit history pulled from almost 4 million consumers, reviewed credit habits from June of 2009 to August of 2012. Their conclusion was that including trended data materially improved modeling of loan performance, ultimately reducing risk.
Fannie Mae wasn’t alone. TransUnion Credit Agency, one of the three agencies that track consumer credit, also happened to learn that the percentage of consumers in the Super Prime risk tier, who generally have the greatest access to new loans at the lowest pricing, could increase from 12% of the population to nearly 21%.
The result for these newly minted to this status is potential access to lower interest rates, resulting in large savings in reduced interest payments over the life of a thirty-year mortgage. Even more important is that nearly 26.5 million previously unscored U.S. Consumers could be effectively scored using trended credit data—affording many the dream of homeownership.
So, how does trended credit data work? The agency has placed consumers into two different categories. The first, “Transactors,” are those consumers making more than the minimum monthly payment or who retire their debts each month. The other, “Revolvers,” are those that run an ongoing balance on credit cards, making only minimum payments and don’t generally pay off their debts but can and usually make regular payments to their credit obligations. The object of dividing consumers in to these two categories is create a richer view of credit worthiness and overall borrower risk. Their view being those that pay off their debts regularly, rather than run a balance on credit line are viewed more favorably. The new framework can also consider a one-time missed payment as out of the ordinary when the borrower is generally on-time with their payments.
Consider the following: if you, as a borrower, fall into the “revolver” category, your access to better interest rates and loan programs might be hindered. So, there is good reason to keep your payments regular and make more than the minimum payment each month. You’ll wind up giving less of your hard-earned money to the credit card companies too. If you want to go deeper on the topic of trended credit data, you can read Michelle Crouch’s article over at creditcards.com
Now more than ever, your excellent credit is the key to homeownership and access to the best loan programs available. Want to learn more and even get pre-approved for a home loan? Contact me today so that we can review your specific needs and circumstances. We’ll work to help you achieve your goal of homeownership by listening to your needs, arming you with information and then getting you the loan that works best for you.
And remember, in this competitive market, shopping without a fully underwritten pre-approval may lead to missing out on your dream home. So, be sure to ask me about fully underwritten TBD loans.