Changes to U.S. Credit Reports: Impact on Relocation
A major change to U.S. credit reports is set to roll out which will incorporate what is being referred to as trended credit data into a borrower’s credit profile.
When evaluating an application for credit, the potential creditor is tasked with trying to predict an applicant’s future repayment habits. Credit repositories (Equifax, TransUnion, and Experian) issue a composite number between 300 and 850. A higher score is typically viewed as a good indicator that the borrower is a less risky applicant, and that they will repay their debt. What is missed in this composite number is the detail and history of the borrower’s payment habits.
What is Trended Credit Data?
Trended credit data is an expanded and more robust view of a consumer’s credit. Currently, credit profiles look only at a moment in time of one’s credit. In other words, if your credit card balance is $7,000 and your minimum monthly payment is $100, your credit report reflects just that simple fact. What is missed is the nuance and history of you potentially paying off that balance each month, and what that might mean in terms of being a good credit risk.
Additionally, under current practice there is no distinction between people who carry balances on credit cards and those who pay them down, or off, on a monthly basis. Under the new expanded method, credit reports will reflect 30 months’ worth of payment history. This means that it will be more important than ever to pay more than that minimum monthly payment!
The broader information on credit reports going forward will greatly benefit a consumer who may have experienced a hit to their credit score due to one missed payment. If that consumer typically pays on time and pays more than the minimum monthly payment this trend will be reflected. An underwriter could see that the missed payment was atypical and take that into consideration in their analysis.
The automated underwriting system used across the industry, called Desktop Underwriting, or DU, is set to read these new credit reports starting at the end of June. It is a little early to know how mortgage underwriters are going to implement trended credit data but it is an exciting change. The expectation is that lenders will be able to determine a borrower’s credit behavior and use this in their approval decisions.
What Does This Mean for Relocation Programs and Transferring Employees?
Because of these changes, we are recommending more than ever that transferees speak to a national mortgage lender as early in the process as possible. This will give them an opportunity to check their credit, and may give them time to fix any issues that might be on their credit report before they are ready to purchase a home.
We will continue to keep you informed of any updates or changes on this issue as they occur.