Lenders pay close attention to your credit, but it’s not just your credit score that they look at – they also look at the credit history. They don’t want to know just how your credit is right now; they want to know what your credit is like over time. In other words, what are your financial habits?
A credit score only tells a lender how you are doing at the moment. They need to know where your credit started though. Is it increasing or is it decreasing? This gives lenders a better idea of what is going on in your life at any given moment.
One of the best ways to do this is with trended credit data. Keep reading to learn how it works.
The Information Included in Trended Credit Data
Trended credit data monitors your credit history for the last 2 years. It lets lenders know the balance of your accounts over that time as well as the original loan amount. If you have credit cards, it will show the original credit limit that the credit card company gave you. It will also show your minimum required payment each month. Finally, it will show the actual payment that you made each month. This lets lenders know how well you manage your bills.
This trended credit data lets lenders understand your financial habits. For example, if you are only making your minimum payments on your credit cards and you have high balances, a lender could determine that you are in financial distress. This could make them not want to give you a mortgage for fear of making your financial stress even greater.
On the other hand, if you are making larger payments than required on your credit cards or even your personal loans, a lender can determine that you are in a good financial position. You look as if you want to get yourself out of debt and can manage your finances. This could work in your benefit as lenders determine that you are a good risk for a mortgage.
What do Lenders Look for in Trended Credit Data?
Lenders look for specific things when looking at trended credit data. They include:
- Do you pay your credit card bills off in full each month or do you carry a balance? If you pay them off, it will work to your benefit.
- If you don’t pay your credit card balances in full, do you at least show an effort in paying the balances down by paying more than the minimum required payment?
- Do you continually charge new items on your credit card or has the balance been shrinking as you try to pay it off in full?
Lenders use this information to make a lending decision. It tells them more than your credit score is right now – it tells them how you use your credit over time. It’s not a snapshot, but rather a historical report on your financial habits.
This doesn’t mean that if you have credit card balances that you won’t get a mortgage. Lenders will just take that into consideration as they figure out how much to lend you. If you are a consumer that likes to charge items and carry a credit card balance, a lender might see you as a little riskier than someone that pays their bills in full. While a lender might give you the same loan amount, they may charge you a higher interest rate or charge higher fees to make up for your riskiness.
Your trended credit data and even your credit score isn’t the only thing lenders look at, although it’s a big piece of the puzzle. It definitely helps if you start with a high credit score and trended credit data that shows good financial habits. If you don’t, though, you can make up for it with other compensating factors that may include:
- A large down payment – The more money you put down on a home, the less risk of default you pose, which can make a lender more willing to give you a loan
- A low debt ratio – Even if you have outstanding debts, if your debt-to-income ratio is low, lenders may be willing to give you a loan despite your outstanding debt
- A stable employment history – If you have had the same job for a long time and your income continually increases, it shows lenders that you are stable a reliable, both of which are good things
Trended credit data is just one part of what lenders look at when making a lending decision. If you can show a solid credit history with bills paid in full and no late payments, you’ll increase your chances of loan approval.