Later
this month, Fannie Mae will start requiring Trended Credit Data (TCD) as
reported through Equifax and Transunion.
At present, this will not affect FHA or VA loans – but that could
change. So, what is Trended Credit Data,
and how will it affect you?
While
Fannie Mae, Equifax, and Transunion all use English words to define TCD, the
definitions are very long winded and boring, so let me cut to the chase: it
means that rather than looking at your credit score as it stands on the day
it’s pulled, TCD goes back 24-30 months to examine your credit
“behaviors”. The long and the short of
it is this: if the “trended data” shows that you have a large credit card
balance, and you pay it in full each month, you have a higher level of credit
worthiness than someone who has a large credit card balance and only pays the
minimum required amount each month. Are
you with me so far?
There
are a couple of big ramifications of this new policy,
of
course, but let me point out one of the most obvious ones: gone are the days of
getting bigger near-instantaneous bumps (upward) in your credit score when you
pay down a loan or pay off an outstanding credit card balance. The reason being that now the credit score
will be based on how you’re been “trending” for the last 24-30 months: if
you’ve been paying the minimum amount on your credit cards for the past two
years, making one big payment to wipe out the balance is going to be
significantly “downgraded” in importance because you have 23 prior monthly
payments showing a completely different behavior. Buckle up because it gets . . . more
interesting.
As
part and parcel to this new policy of TCD, the nation’s largest property
management company has convinced Equifax and Transunion to include late
payments of HOA dues to be factored into a person’s credit score. Yes, you read that correctly. And you know that every other property
management company, big and small, will follow suit shortly. The positive side to this is that since it’s
going to be viewed through the TCD lens, this means that it will take 12
months, at least (but hopefully longer), to establish a “trend” before it can
be included as part of the Trended Credit Data.
For this reason, coupled with the fact rates are as low as they are, now
is the time to start looking for that next home purchase – waiting will only
give the credit folks time to build up their trended data, and there’s never a
guarantee with the rates.
As
for Fannie Mae requiring TCD, there’s no need to get unduly worried. Will requiring TCD change the options
available to you to obtain a loan? It’s
very likely depending on your current credit behaviors. With that said, though, we have always had
more options to present and pursue than other banks and brokers – and we’ll
continue to buck the trend(ed).
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