Anytime a lender approves and ultimately funds a borrower, they are relying on a prediction that the borrower will pay them back in full. As a result, lenders are always trying to strengthen their “predictive power” when it comes to reviewing loan applications.
When it comes to assessing an applicant’s credit score, trended data provides lenders with a more accurate and expanded picture of a consumer’s financial behavior. This allows lenders to offer more precisely tailored offers, based on the data available. FICO, the largest provider of credit scores in the US, is (link: /learn/about-loans/fico-changed-its-credit-score-model-what-you-need-to-know text: updating its scoring system) to now include trended data. Using trended data to decide credit scores can affect how consumers are assessed by lenders, both positively and negatively.
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Who Tracks Trended Data?
Trended data is provided by the three major credit bureaus: Experian, Equifax, and TransUnion. What makes trended data unique compared to traditional credit bureau data is that it focuses on the previous 24 months of a consumer’s credit history. This time frame provides a more accurate assessment of how a consumer is managing their credit, and whether they are showing improvements over the two-year span or are showing signs of deterioration, as far as: paying their balances on time, paying their balances in full, and overspending.
The FICO Effect
FICO Score 10T, part of FICO’s new scoring model, will incorporate trended data into its scoring process. This change marks a development from FICO’s previous position on trended data, in response to how credit bureaus are continuing to assess (link: insight.equifax.com/trended-data-impact-credit-decisions/ text: predictive behavior) in consumers. FICO Score 10T collects an array of different data from consumers over the 24-month window. This includes balance information, loan amounts, credit limits, average payment dates, and average credit utilization ratios.
Trended data helps lenders provide loan offers that match your financial situation. Find out what rates you’re eligible for with Fiona.
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Trended data can provide lenders with a longer-term understanding of a consumer's financial behavior. For example, lenders will have a more accurate picture of someone consistently carrying a month-to-month balance or if they’re consistently paying their balance on time. Furthermore, lenders will better understand if someone’s outstanding balance is going up or down. Data like this, over a two-year period, can help lenders determine where a consumer’s credit behavior is trending, for better or worse.
Broadly speaking, trended data spotlights both consistent behavior and whether certain activity is unusual. Regarding the latter, sudden changes in a person’s credit history will have less effect on their FICO score. The goal is to allow lenders to make more predictive offers, which could reduce defaults on credit accounts. Furthermore, by preventing borrowers from taking on loans they can’t afford to pay back, it could massively reduce payment stress.
By providing a more precise and pertinent picture of how a person makes financial decisions over time, trended data is changing the way credit scores and lending decisions are reached. The conventional financial wisdom still applies (e.g., pay on time and keep a low credit utilization ratio). The difference is the extent at which certain habits leave their mark and how improved trends are rewarded (while poor trends are penalized). If you’re a consumer that’s trending up, it could help build your credit score and improve your chance of approval for a (link: /products/loans text: personal loan).
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