Equifax’s December 2016 Consumer Credit Impact analysis found that trended credit data used alongside a consumer’s traditional credit report could improve access to credit and/or loan terms for up to 1.5 million consumers on an annual basis.
Trended credit data provides up to 24 months of a borrower’s payment patterns, and offers a historical perspective of specific payment behavior – including scheduled payments, actual payments and past balances. This expanded, two-year, granular view of the consumer gives the lender the opportunity to extract meaningful insights to help predict future behavior around credit.
Trended credit data was first introduced into the marketplace in September of 2016 as part of the mortgage underwriting process in partnership with Fannie Mae. Prior to its introduction, when assessing a potential homeowner’s credit report, mortgage lenders historically had access to an individual’s total outstanding balance of credit, utilization and overall credit availability as part of a consumer’s traditional credit report. The report did not offer details on whether payments serviced all or part of an individual’s debt or if patterns existed in the consumer’s balance utilization.
As an example, one consumer might pay off their balance monthly or pay more than the minimum amount due. While another consumer might make only the minimum payment due almost every month, yet still on time. Assuming both their credit histories and loan characteristics are otherwise about the same, including the fact that they both pay on time, the consumer that pays off their balance monthly or pays more than the minium amount due would typically be considered a lower credit risk based on their trended data attributes.
The Equifax December 2016 Consumer Credit Impact analysis found that on a yearly basis the addition of the new Trended credit data could mean an approximate increase of 4% or 267,000 more mortgages being issued to consumers who may have been previously ineligible. For HELOCs, approximately 65,000 more accounts or a 4.1% more lines of credit could be issued to consumers. Auto loans are expected to see the most significant impact with an anticipated 1.1 million more auto loans either being issued or receiving more favorable terms.
“Giving weight to how borrowers pay off credit debt puts more power in their hands to manage their credit evaluation.” said Peter Maynard, senior vice president Global Analytics at Equifax. “New ways of assessing consumer credit behavior through unique insights is something we are continuing to develop at Equifax, and opportunities to expand credit to consumers and mitigate for risk for lenders make these type of approaches solid ones for the entire marketplace.”
Equifax expects an increasing reliance on credit data insights like trended credit data particularly as some industries, like the the auto sector, settle into what some analysts view as more of a post-recession norm. For these lenders, it will be vital to leverage as many insights about consumer debt behavior as possible to more confidently assess risk for a stable portfolio performance in support of a healthy loan marketplace.
Over the last 10 years, Equifax has focused on utilizing the data it has on hand to support the sustainability of the financial marketplace, as well as the needs of creditworthy consumers. Consumer credit data is the most accurate way to assess a consumer’s financial health and a useful tool in assessing current economic performance. Equifax is working to revolutionize consumer credit information to enhance its offerings in support of consumers and economies around the world.
About The Author
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at email@example.com.