Groundbreaking Credit Score Enhancements To Boost 2016 Loan Approvals

Consumers To Start Seeing Higher Credit Scores This Summer

A big change is coming to credit reports, and it could help you qualify for a mortgage.

Consumer credit scores could rise, putting an additional nine percent of the population in a top-tier , according to credit bureau TransUnion. And credit-challenged borrowers could benefit too.

This credit reporting enhancement is different than many others before it: lenders should actually use it.

Lenders have not adopted many positive credit reporting changes in the past.

This time, leading mortgage rule-maker is incorporating the changes into the underwriting system used by almost every lender in the country.

Consumers will start seeing the effects of the credit report enhancements, called trended credit data, starting on June 25, 2016.

More mortgage applicants could start receiving approvals, and those who already qualify could get much lower rates.

New Credit Scoring Will Be Based On Broader Consumer History

Credit bureaus try to predict a mortgage applicant’s future success as a homeowner.

They issue a number between 300 and 850 based on how “good” the consumer has been with credit. This is known as a credit score.

A high score indicates the consumer has a good chance of repaying future debts.

But the system does not always work so well.

One missed payment can drop a consumer’s credit score by 100 points or more. Because of one missed credit card payment of $15, for instance, the consumer might receive a higher mortgage rate and pay thousands more in interest over the life of a home loan.

Trended credit data looks to combat this situation.

It is a two-year analysis of a consumer’s credit profile based on trends, not a one-time event.

Lenders will be able to determine a borrower’s credit behavior and use this better information for an approval decision. The new credit reports will show the lender the following tendencies.

• The borrower pays off revolving credit lines each month
• The borrower makes minimum or additional payments
• The borrower is reducing total amount borrowed over time
• The borrower makes inconsistent or seasonal changes in monthly payments

The trended data will be included on credit cards as well as (HELOCs), student loans, car loans and mortgages.

The credit scores used in most lending decisions currently do not distinguish between folks who carry balances on credit cards and those who pay them off each month.

Trended data will help lenders see if a borrower is reducing their overall debt over time — a very good indicator of future mortgage-borrowing success.

Trended data provides a fuller picture of a consumer’s credit trends, supplementing the traditional moment-in-time credit snapshot with a more dynamic picture that includes managing revolving accounts.

Credit Score Enhancements To Help High- and Lower-Credit Consumers

According to TransUnion, using trended credit data would increase the percentage of consumers in its highest tier from 12 percent to 21 percent of the U.S. adult population.

Lenders offer the lowest rates to applicants with the highest credit scores.

If TransUnion’s estimates are correct, this single change could give an additional nine percent of consumers access to the lowest rates available, saving them thousands in interest costs.

But lower top-tier consumers are not the only beneficiaries.

The changes could make a big difference for borrowers in a lower credit spectrum as well. Trended credit data could turn a denial into an approval.

For instance, FHA loans require a score of 580 to qualify for the 3.5% minimum downpayment. A borrower with a 575 score would not qualify.

Under new trended data analysis, the same borrower might receive a score of 590, putting them in eligible territory for a low-downpayment FHA loan.

Consumers Can Recover From Minor Credit Mistakes

This more wide-ranging look will help lenders differentiate between “transactors” and “revolvers”. Transactors tend to pay their balances in full every month whereas revolvers typically make minimum payments (or a payment less than the full balance).

Existing credit reports cannot differentiate between the two. As such, transactors aren’t able to reap the benefits of being the type of borrowers lenders are looking for.

Payment delinquencies are a substantial factor in credit scores, and borrowers can’t really do much but wait for the delinquencies to season over time.

But when trended credit data is considered, by paying credit card balances in full or in large part for a few months, borrowers can essentially counter that late payment and show that it wasn’t a true reflection of their general debt repayment ability and behavior.

Trended credit information has proven to be more predictive of a consumer’s future credit performance than traditional credit scoring.

Predictive risk scores that leverages trended data is an enhanced way to evaluate consumer credit. This can potentially open doors for millions of U.S. consumers to access credit and obtain better terms on their mortgage loans.

What Are Today’s Rates?

Trended credit data is destined to be the standard for future credit decisions made by lenders, allowing for a more comprehensive representation of a borrower’s ability to manage their credit.

Get today’s live mortgage rates. Your social security number is not required to get started, and all rate quotes come with access to live credit scores.