Sometimes lenders need a more detailed look at your credit history. What the traditional credit report provides is fairly generic, making it hard for lenders to make a decision. Oftentimes lenders turn down borrowers that might have been a good risk after all. This is what brought about trended credit data. This completely different credit reporting system shows the true pattern of your spending habits, giving lenders a better view of what you will be.
The Difference Between Traditional and Trended Credit Data
Traditional credit reports show lenders the timeliness of your payments. For example, a credit card will show if you made your payments on time for the last few years. If you made a payment late, say 30 days late, it will show on your report. If you let that payment continue to be late it then becomes a 60-day or 90-day late. That’s all the information the lender can see, though. While knowing if you make late payments is a good thing, it’s not the only factor lenders need.
Lenders want to know your pattern with credit cards. Do you charge things and then not pay them off? Do you leave a balance every month? Do you pay your charges off each month? This is what trended credit data shows. It lets lenders see your credit card balance over the last 2 years and what your credit line was during that time. This way lenders can get a better feel for your spending habits.
What lenders are really after is the amount you pay. Do you:
- Pay the minimum balance
- Pay more than the minimum balance
- Pay the balance off in full each month
How it Can Affect You
The trended credit data gives lenders a better idea of the type of spender you are and what type of financial situation you are in. For example, just looking at your credit card balances isn’t enough. Sure, the lender can figure out your debt ratio based on the payments and they can see how much debt you have outstanding, but it doesn’t tell them how that debt got there.
Trended credit will show lenders when you accrued the debt. Did you just charge thousands of dollars a few months ago or have you had the debt for many years and are paying it down? These are things lenders need to know. The borrower that just accrued a bunch of debt a few months ago will be a much higher risk to lenders than the borrower that has the same amount of debt, but has paid it down over the years. The borrower that shows he can pay down his debts in a timely manner will win over the borrower that just racked up a bunch of debt.
Trended credit can also give lenders a different perspective on the debt ratio. It doesn’t do them any good to look at a debt ratio and say ‘yes’ or ‘no.’ What’s the story behind the debt ratio? Looking at trended credit, lenders can tell if you’ve had the same debt ratio for a while. If you have, how do you handle it? Do you have any late payments reporting in that time? If not, then you might be a good risk – that 40% or higher debt ratio might not be a factor for you.
Trended credit provides a more in-depth look at what type of risk a person really is rather than just making assumptions. FICO still gives lenders a lot of information, but it does leave a little to be desired. Trended credit data can close the gap on those answers that lenders need in order to make an informed decision.