While “transactors” and “revolvers” may sound like the newest Sci-Fi movie, they are actually two new categories now measured by a new credit reporting approach called trending credit. This new approach goes back two years and looks not only at payment timeliness but also at credit trends. A “transactor” pays their credit on time and often in full or significantly over the minimum required payment. A “revolver” is more likely to pay the minimum required, move balances around, and shop for better credit card deals. Revolvers are considered riskier especially those who carry large unpaid balances.
Until recently credit reports told us if the applicant was late on a payment or had defaulted on a loan but they didn’t tell us how the consumer manages their debt.
Fannie Mae will begin evaluating how all applicants manage their credit with a two-year look back to determine payment and spending patterns. This is called ‘trended credit data’ and we have yet to learn how this new approach will impact consumers. However, the common belief is that utilizing this approach will help millions of consumers who have little to no credit history or do not generate a credit score, to build their credit profile. This may allow them to qualify for a mortgage today that they did not qualify for in the past.
This new trending data approach will not alter a consumers FICO credit score, but will change the way the consumer’s use of credit is evaluated. It will take some time to determine how this approach is working for the mortgage industry. Credit industry experts say this move by Fannie Mae is a huge step towards fairer credit.
Freddie Mac has not made a decision to adopt this approach as of this time.
There has been no national discussion addressing any potential negative impact this will have on lending qualification. We will have to wait and see but for now it is important to understand that consumers’ credit is now being evaluated at a deeper level.
For more information on this subject read this great article by national real estate reporter, Ken Harney https://www.washingtonpost.com/realestate/when-seeking-a-mortgage-you-dont-want-to-be-categorized-as-a-revolver/2016/04/26/b689a31c-0b03-11e6-a6b6-2e6de3695b0e_story.html