Trended Credit Data Is Finally Here - Here's What It Means

Last weekend marked a significant moment in mortgage finance history as the new, so-called "trended" credit data was launched.

We initially looked at trended credit data back in May. However, its planned introduction date of June 25th was postponed until last weekend, so we can now finally look forward to seeing the anticipated positive effect it will have on the mortgage market.

To re-cap, trended credit data is a new, more in-depth, method of compiling credit reports on home loan applicants.

It has been introduced by Fannie Mae, the government-sponsored, leading source of financing for mortgage lenders.

The key difference in trended credit data is the new ability for lenders to dig deeper into an applicant's credit history than was previously possible.

This has significant benefits in that better qualified buyers now have more ways to demonstrate their diligence in managing their financial affairs. The expectation is that this will make it easy for such home loan applicants to obtain the financing they are looking for.

Until last weekend, credit reports used in mortgage lending only provided an indication of outstanding credit balances and a borrower's timely or delinquent payment of existing revolving credit accounts, including credit cards and student loans.

Trended credit data provides a more forensic analysis of a person's borrowing behavior as a whole. Lenders can now observe the applicant's monthly payment amounts over time, revealing if, for example, only minimum-due amounts are generally paid, or if greater sums are involved or, indeed, if balances are actually being settled each month.

Lenders finally have a means of distinguishing between borrowers who pay off their credit balances each month and those who carry balances from month to month, plus their general repayment habits.

Fannie Mae's expressed goal with trended credit data is to make it easier for the best qualified borrowers to get the mortgage they are seeking, by drawing some clear distinctions with borrowers who manage their credit less effectively - an assessment that's simply not been so clearly defined until now.

The benefit to lenders is that they will be in a stronger position to make informed borrowing decisions with a lower degree of perceived risk. This should aid the fluidity of borrowing, due to better lender confidence.

It's quite possible that the lack of this level of information in the past has deprived certain well-disciplined borrowers from obtaining the home loan they seek. Trended credit data should therefore be seen as an incentive and opportunity for some groups of potential borrowers to re-apply for a mortgage, having been turned down in the past.

For would-be borrowers who haven't managed their credit as well as they might, there is still a positive message here, in that improved credit management skills will now be more accurately recognized in the mortgage approval process.

Obviously, it is vital that you seek professional guidance on your individual situation when it comes to applying for a home loan and your suitability for borrowing.