Trended Credit Reporting is Here
WHAT IS TRENDED CREDIT DATA REPORTING?
It’s a new way of evaluating a client’s creditworthiness that gives lenders more thorough data on the “trends” of an individual’s credit profile instead of simply a “snapshot” view.
THE PROBLEM WITH TRADITIONAL REPORTING
Under the past reporting system, a credit history revealed only the amount owed on each credit account along with information on any late payments. However, this isn’t always a true representation of whether or not a client is a risky borrower. Perhaps an individual uses credit cards to pay for all monthly expenses but routinely pays the balances in full each month. Maybe he uses them to pay for all holiday purchases in order to earn points, air miles, or other perks but pays off the entire amount within a month or two. Until now, none of these factors were considered when determining whether a person is a reliable, low risk borrower. Depending on the account balances on the day the history was pulled, this person could be seen in the same light as a person who pays only the minimum amount required and continuously carries a large balance over many months or even years.
TRENDED CREDIT OFFERS A SOLUTION
With trended credit data, the lender not only sees the balances but will also be provided a 24-month history of previously scheduled payments as well as actual payments made. Therefore, how a borrower utilizes credit is revealed instead of only how much he owes and whether or not he makes payments on time. A client with a consistent high debt load will be distinguishable from one who utilizes debt more wisely and purposefully, paying off entire balances routinely. Trended credit data answers questions such as:
OUTCOMES OF FANNIE MAE’S NEW SYSTEM
According to Fannie Mae, trended credit is required only for conventional loans using the automated credit risk assessment system Desktop Underwriter® (DU®) version 10.0, which was released on September 24, 2016. Keep in mind, though, that while more information is available with this new method of reporting, credit scores themselves will not be affected. One positive outcome for some is that clients who otherwise would have looked risky to lenders may now be considered in a more positive light.
BY DAWN WOODEN