Credit Data Just got Bigger
Beginning September 24th, Fannie will require lenders to utilize the new improved credit data provided in reports by Equifax and TransUnion. These new reports will utilize trended credit data as opposed to the static FICO score. (Trends)
Years ago, we were told that these repositories created a much better process to evaluate a consumer’s credit profile; the FICO score. Lenders argued back then that this did not represent a full credit picture as there were others factors that come into play when making such an evaluation. Well, I guess Fannie and the repositories now agree. There is more to a credit profile than just a credit score – good old fashioned underwriting.
Like it or not, lenders will now get the credit score along with all the debt payment trends over the past 24 months. This is intended to present a more complete picture of a consumer’s repayment experience and how much debt they carry. How do they manage their revolving debts; repay in full each month, or pay a lesser payment and carry the debt over time?
Based on the new rules, it does make a difference. As a result, some consumers who may have been approved for a loan under the old FICO method may now get denied because of their trended payment data. It’s all a matter of perceived risk. Now it is determined by Fannie through their updated DU engine. Ah, the wonders of the black box.
Whether you wish to use the new trended data or not, you’re going to get it and pay additional for it, when obtaining your credit reports. Most likely, this additional cost will get passed on the consumer (another tax on homeownership). Fannie requires it, but not FHA, VA Freddie or any private investors (yet). However, since most conventional loans end up with Fannie, it pays to get the new report.
Additionally, strictly from a risk perspective, it would seem the additional data would benefit any lender in making a more informed decision on a borrower’s approval. So, since you’ll get, and pay for, the additional data you might as well make the most of it.
Use of this new data as compensating factors to approve an FHA loan may go a long way toward warding off a challenge by FHA, or DOJ, in the event of a default. You might as well utilize this information to your benefit.
So get used to it. The new (old) tended credit is here. Fannie requires it, but used in evaluating all loans could prove very beneficial in the long run.
Get with the trends. The game has changed. Play different.