Trended Credit Data (TCD) is a new Fannie Mae underwriting yard stick. TCD is basically a two year history of each monthly payment we have made. Did we pay the minimum balance, the full balance or some other amount? The credit bureaus already collect data on our monthly payment habits but have not included ‘how much’ we pay each month until now.
To answer the question, TCD will be used in Fannie Mae automated underwriting starting June 25th. Transunion and Equifax will begin to include TCD data on their Fannie Mae reports. TCD currently has no impact on Freddie Mac, FHA, VA, USDA or any other loan programs.
TCD proponents claim that it will “boost mortgage availability for responsible borrowers and lessen future mortgage defaults.” The logic is that borrowers making only the minimum payments on revolving accounts are higher default risks than those paying their full balances monthly. A borrower who is just short of qualification can now be pushed over the line into an approval if their history shows minimal balances carried form month to month because they make larger than required payments.
What TCD will do:
- Include 24 months of actual payment amounts on revolving accounts.
- Improve “full payers” odds of being approved through Desktop Underwriter. A marginal “full payer” borrower who wasn’t approved by DU before, might be approved on loans after June 25th.
- Hurt cash challenged borrowers who make the minimum payments while carrying high balances on revolving accounts. Under current DU risk assessment, they might be approved, but TCD’s addition of their actual payment amounts could change those findings.
What TCD will not do:
- It will NOT change borrower credit scores. Fannie Mae predicts that borrowers paying their full balances monthly (“full payers”) will be 60% less likely to have mortgage delinquencies but it will not impact the current credit scoring models.
- It will NOT help marginal borrowers whose credit scores are below Fannie Mae’s required minimum (620). While TCD may boost a 621 score, “full payers” loan approval odds, it won’t for a 619 “full payer” whose scores don’t meet Fannie’s minimum requirement.
- It will NOT impact FHA, VA, or Freddie Mac loan approvals. Fannie Mae is the only loan guarantor using TCD to gauge risk, for now. Working with experienced, professional Loan Officers who know the differences between Fannie Mae and Freddie Mac guidelines will become even more mission critical when applicants are choosing their mortgage company.
Depending on the Fannie Mae results go forward, it seems likely that eventually TCD will factor it into borrowers’ credit scores. In the mean time, we can add paying balances off each month as goal when thinking about getting any kind of mortgage financing. Please, do keep in mind that paying accounts off and not using them will still reduce your credit score over time.
INSIDER TRICK: I recommend setting up auto-pay on your utility bills, insurance, etc to go each month onto one of your credit accounts. Make sure each credit account has at least one bill charged to it each month. You now have up to 30 days to pay that balance in full before finance charges are accessed. You will also get whatever cash-back or miles/points benefits that the credit account offers. The next step is key. Now setup auto-pay of the entire balance of each credit account from your checking account when the credit account payment is due. It’s a win-win-win: All your bills will always be paid on time. You maximize your credit score as well as your TCD rating. You get cashback or bonus rewards from the creditors.
Ray Jones – http://www.oneray.com