The information and procedures used by mortgage companies to qualify home buyers continues to change. Trended credit is something new to be implemented for Desktop Underwriting (DU) data. Below is an overview of trended credit and the potential impact of trended credit on future mortgages.
What is Trended Credit
Your payment history contributes greatly to your credit score. So, if you miss one or more payments, it drops your score. It’s a pretty black and white analysis of payment history. Additionally, DU views buyers who miss payments as higher risk for defaulting on a home loan.
Trended credit evaluates your payment history more intelligently. If you miss a payment but then make significant payments on your debts, and/or even pay it off entirely, trended credit analysis gives your credit profile a more favorable view. Essentially, it interprets that those missed payments as not being reflective of your current/general ability to repay your debts. This reduces the perceived risk of you as a borrower.
Impact of Trended Credit on Future Mortgages
So, what does this mean for future home buyers? Although trended credit data will not impact credit scores, it will impact DU risk assessments. This can actually help home buyers. By regularly paying off revolving debt (i.e. paying credit card bills in full each month), buyers can demonstrate that they are less risky despite having missed payments in the past. The impact of trended credit on future mortgages will be positive for home buyers who make a diligent effort to pay their credit card bills each month.