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Lenders To Start Using Another Credit Indicator On June 25
Fannie Mae, a dominant investor in the mortgage market, will begin requiring trended credit data on every applicant as of June 25. Freddie Mac, another large mortgage investor, is evaluating whether or not to require the same information.
What is trended credit data?
It is a more detailed view of how you use credit than has previously been available. The information has been collected by the credit bureaus but does not show up on your credit report. Trended credit data includes information such as what the minimum monthly payment is for each account and whether you are paying just the minimum or substantially paying down (or paying off) your balance every month. It will also include information on how frequently you transfer balances from one account to another.
Equifax and TransUnion will begin supplying two years' worth of reach-back data on June 25 to Fannie Mae. The data will become an integral part of Fannie Mae's automated underwriting system which is used by the vast majority of mortgage lenders.
Transactors are people who pay off credit bills every month or make more than the required minimum payment. Revolvers are people who make minimum payments every month. Statistical research by the credit industry seems to indicate that, all other factors being equal, transactors tend to be lower credit risks than revolvers.
Will this help or hurt you?
If you only pay the minimum balance on each account every month, it will hurt. You may want to consider increasing the amount you pay each month before you start to apply for a mortgage. If you have a thin credit history but usually pay down or pay off your balance each month, it will help. TransUnion reviewed "unscorable" files and discovered about 26 million people would be able to generate credit scores if this information is taken into account. About 3 million of those people could be classified as good or very good credit risks, possibly leading to reduced interest rates for them.
Noted real estate columnist Kenneth R. Harney said, "Fannie Mae’s use of the new credit report data will not affect anyone’s FICO credit score, but it will open the door for applicants who look marginal or unqualified yet demonstrate responsible credit management habits over time. They may not have vast amounts of credit available to them, but they pay off or limit their balances."
Terry Clemens, executive director of the National Consumer Reporting Association, says this is the biggest change in nearly 25 years for the mortgage credit report. Credit industry experts consider this a major advance in fairer credit.
Bottom line, from Kenneth Harney: "Be aware that how you manage your credit could now become a key determinant of whether you get a mortgage. Transactors will reap the benefits; revolvers playing games with credit cards will get more scrutiny."
With more than 30 years of combined experience in Montgomery County real estate, Debbie Browne and her partner Charles Chapman are an exceptional team to help you buy or sell your home. Big-picture ov....