A Consumer Credit Impact analysis by Equifax Inc. found that trended credit data used alongside a consumer’s traditional credit report could improve access to credit and/or loan terms for up to 1.5 million consumers on an annual basis.
Trended credit data provides up to 24 months of a borrower’s payment patterns, and offers a historical perspective of specific payment behavior, including scheduled payments, actual payments and past balances. This expanded, two-year, granular view of the consumer gives the lender the opportunity to extract meaningful insights to help predict future behavior regarding credit.
As an example, trended data attributes would let lenders distinguish between consumers who pay off their balances monthly or pay more than the minimum amount due and consumers who make the minimum payment due almost every month. Assuming both groups of consumers make all their payments on time and that their credit histories and loan characteristics are otherwise about the same, the consumers who pay their full balances monthly or pay more than the minimum amount due would typically be considered lower credit risks based on their trended data.
Trended credit data was first introduced into the mortgage marketplace in September 2016 as part of the mortgage underwriting process in partnership with Fannie Mae. Prior to its introduction, when assessing a potential homeowner’s credit report, mortgage lenders had access to the consumer’s total outstanding balance of credit, utilization and overall credit availability as part of the consumer’s traditional credit report. Historically, credit reports did not contain details on whether payments that were made serviced all or part of an individual’s debt or whether certain patterns existed in the consumer’s balance utilization.
The December 2016 Consumer Credit Impact analysis found that lender access to trended credit data could, on an annual basis, result in:
“Giving weight to how borrowers pay off credit debt puts more power in their hands to manage their credit evaluation,” said Peter Maynard, senior vice president Global Analytics at Equifax. “New ways of assessing consumer credit behavior through unique insights is something we are continuing to develop at Equifax, and opportunities to expand credit to consumers and mitigate risk for lenders make these types of approaches solid ones for the entire marketplace.”
Equifax further expects increasing reliance on trended credit data particularly as some industries, like the auto sector, settle into what some analysts view as more of a post-recession norm. For these lenders, it will be vital to leverage as many insights about consumer-debt behavior as possible to more confidently assess risk and to support a healthier loan marketplace.