Tracking credit trends

Posted by on May 4th, 2017

 

Opinions differ on credit scoring’s new trend toward “trended data” – where borrowing and making payments on your credit accounts is carefully tracked over time.

The nation’s leading credit reporters – Equifax, Experian and TransUnion – are switching to the VantageScore trended data system this fall.

Meant to provide more context to debt load, it’s supposed to give lenders a more holistic view of a person’s credit behavior.

Mortgage-backing giant Fannie Mae already requires underwriters to use trended data when assessing home loan applications.

Historically, credit card reports only contained the balance, the amount of available credit and if a borrower was making payments on time.

Before trended data, some credit users could “game” the system, by opening more credit cards, and not using them.

By keeping utilization low and paying bills on time, scores would improve, regardless of the amount of payment.

The riskiest borrowers pay only the minimum due every month, and with trended data, those folks can be readily identified.

These credit users – often with high credit limits and low utilization – won’t likely have as good a score as someone who zeros out balances every month.

Opening a lot of credit card accounts – but not using them – could negatively impact your credit score.

Or maybe not.

Many experts say there is no reason to immediately close all credit cards you aren’t using.

Low balances in relation to available credit are a positive for scoring, and that’s unlikely to change even with trended data. There isn’t just one credit score – there are dozens.

The actual data on whose model is the best or most trusted is still a variable. Scores can vary by which version is used, and lender customizations.

It’s probably more important to make sure you’re making progress toward paying off debt over time.

Smart credit card behavior is still the best way: Only apply for credit when needed, keep balances low and avoid late payments.

Do check your score regularly, and be cautious about making major credit changes right before applying for a loan.