A Background on Credit Scoring Models

Homebuyers who have a better credit history over a longer stretch of time than a shorter one may benefit by a change to the credit-scoring model used by Experian.

Up until about 2016, mortgage lenders didn’t use trended credit data and didn’t differentiate between types of credit usage.

What is “trended credit data?” It’s the information that credit bureaus gather on how consumers manage their credit card balances, and it goes beyond paying your credit card bills on time each month.

The updated model—Trended 3D—uses trended credit data to provide information on borrowers’ balances and credit lines over the past 24 months. That’s a longer view of consumers’ behavior than traditional credit reports provide.

Lenders prefer “transactors” who pay off their credit card balances every month over “revolvers” who carry balances from month to month. The change is that Trended 3D makes a distinction between those types of borrowers, giving transactors a credit-scoring advantage.

Mortgage lenders prefer borrowers who pay off their credit cards each month. If not, they like to at least see borrowers carry shrinking balances because they’re paying more than the minimum payment each month. What they don’t want to see is someone making the minimum payment on their credit cards and to have credit balances growing.

The number of borrowers who are eligible for the lowest mortgage rates could increase through the use of trended credit data if they’ve paid off their credit card balances each month for most of the past two years.

Fannie Mae started using Trended 3D in 2016 with its automated underwriting software. The government-backed home loans are used by more than 1,800 lenders. The extra data is supposed to give some borrowers more access to credit than they would have under the old scoring models.

Fannie Mae only uses trended credit data for conventional loans. It doesn’t use that information when making approval recommendations for FHA-insured or VA-backed mortgages.