Trended Data: A Look into Credit History
- October 12, 2023
- Posted by: Mindy Leisure Director of Rescoring Services
- Category: News
In October 2022 the Federal Housing Finance Authority (FHFA) announced approval for the use of the FICO 10T (released in 2020) and Vantage 4.0 (released in 2017) scoring models. Once rolled out these scoring models will replace the older scoring models currently used by the Government Sponsored Enterprises (GSEs) for mortgages. The FHFA believes the new models will make credit scores more accurate and inclusive.
The most significant difference in the new scoring models, as opposed to the models used now, is the implementation of Trended Data. Trended Data looks at a consumer’s credit habits over the period of the previous 24 months. A credit report pulled now is only a “snapshot” of the current moment in time. Utilizing Trended Data is more like watching a video, which provides an expanded snapshot that brings in the last 24 months of a borrower’s spending and payment habits.
What Information Does Trended Data Consider?
Something not considered in the current models, but is taken into account with Trended Data, are payment amounts. Both the FICO and Vantage models have always looked at whether the payments have been made on time each month but have not looked at the actual amount of the payments. Trended Data will show the actual payment amount each month. The question being answered is whether only minimum payments are being made, or if the payments have been more than what is required. This would especially apply to credit cards. Making over the required minimum payments will have more of a positive effect than just making minimum payments, as it would indicate that a consumer is actively trying to pay off their debt. If only minimum payments are being made it could show that a consumer is not trying as hard and could be more of a risk.
Late payments will also have more of an impact on the scores than they do now, especially late payments made in the last 24 months. While any late payment will have some effect on a score no matter its age, those in the last 24 months will have a greater impact.
Balances on credit cards will also have more of a bearing on scores. Because Trended Data looks back over 24 months, it will show whether consumers are reducing, maintaining, or growing their revolving balances every month. If revolving balances increase monthly, it could be an indication that the consumer is using credit cards to make ends meet. So even though they have been paid on time each month, the fact that they are increasing can be a red flag.
Personal loans will also be looked at much differently as well. Please note, these are not home improvement loans or HELOCS but rather unsecured personal loans. Many consumers will take out a personal loan (also known as a Signature Loan) to pay off their credit card debt. Even though the credit scores will take an initial hit from the new inquiry as well as it being a new account with no history, the scores can actually benefit some from paying off the revolving debt. The problem, however, is that a large majority of consumers will still continue to use credit cards to make new purchases. This means that they will not only have a new loan to pay off, they will still also have credit card debt to pay. Trended Data will consider the fact that the revolving debt was paid off by a new personal loan but will also show the revolving balances increasing.
While there are several other changes between these models and the older ones, the most significant is the use of Trended Data. Briefly a few of the other changes are:
• Rent and Utility bills will now be factored in if they are reported to the bureaus.
• Paid collections will have less impact.
• The rate shopping window will now be 45 days.
What is the Timing of the New Scoring Models?
Many are wondering when these models will be available. The answer is that they are available now, however the GSE’s will not begin accepting them until sometime in 2025. Thus, there will be a bit of a wait before this has any impact on the mortgage industry.
Since Trended Data is more of an in-depth look into a consumer’s credit history rather than just a snapshot of the present time, it will be more beneficial for some borrowers than others. This would be the perfect time for consumers to do a deep dive into their credit and take steps now to ensure that Trended Data works in their favor.