How Trended Data is Changing Your Credit Score

Trended credit data goes beyond the numbers on your credit report to form a more complex and nuanced view of your long-term credit history and behaviors. By factoring in a consumer's credit trends over time, as well as alternative data (like utility and rental payment history), the scoring systems that use trended data (including VantageScore 4.0 and FICO 10T) make it possible to score millions of consumers who would otherwise not be scored by conventional models.

Recently, the Federal Housing Administration (FHA), Fannie Mae, and Freddie Mac all announced that they would be implementing new credit scoring models for the first time in decades.

The two credit scoring models cited in the announcement, VantageScore 4.0 and FICO 10T, are notable for their use of trended data to create a more complete (and theoretically accurate) picture of a potential borrower's creditworthiness. 

According to the creators of VantageScore 4.0, these new models will make it possible for more than 33 million American consumers, who would otherwise have insufficient credit histories to qualify for a score, to receive a credit score. And, as the joint FHA, Fannie, and Freddie announcement suggested, this change will open up access to federally-backed home loans for millions of families.

So how are these new credit scoring models different? And how can trended data help (or harm) your chances at getting a great rate on a loan or credit card? Here's what you need to know.

Trended data models are more than a snapshot in time

Credit scores have historically been static: they're a one-time reflection of your credit history and usage in the moment the score was calculated.

Your credit score is a number based on the data pulled from your credit history. It considers:

• The last time you missed a payment
• How much of your credit limit is currently in use
• How many different types of credit products are currently open in your name

...and much, much more. Credit scoring models do not consider the context of any of those numbers.

• Why did you miss a payment and how likely is it that you'll miss another one?
• How often do you max out your available credit?
• Have you used a mix of credit products in the past?

Trended data models are an attempt to bridge that context gap. Rather than only considering what is on your credit report today, these models use machine learning to analyze your recent past (12-24 months) and create a more nuanced picture of your credit worthiness by weighing your historical trends.

Take missed payments. 

Typically, a missed payment is one of the worst things you can do to your credit score. The negative impact is worse in the immediate aftermath of missing the payment, and then the negative impact diminishes slowly over time. The only remedy is to wait and avoid missing another payment.

With trended credit data models, however, your long-term payment history matters more. A recent missed payment should hurt your credit less as long as you've never missed one before.

The same is true for a high credit utilization ratio. In the older models, your ratio at the time your score was calculated was all that mattered. With trended data models, a brief recent spike in your utilization ratio should hurt you a lot less (again, assuming your ratio is typically much lower).

Newer credit scoring models consider more information about your financial history

One of the biggest changes in these new credit scoring models is the integration of alternative credit data. While optional products and programs have long existed to give you credit for rental payments and never missing a phone bill, these new scoring models include that kind of comprehensive data by default.

This means that consumers with limited or no credit history can still be scored based on their payment history, which is especially important for individuals and communities who don't have easy access to credit products.

Additionally, these new scoring models go beyond the surface numbers. If you make more than the minimum payment each month on your debts, for example, that will be factored positively into your score.

Ultimately, the goal of trended data models is to better predict your future behavior based off of your past behavior. Just like with older models, using credit wisely and living within your means will typically result in a good credit score.

• Make payments on time.
• Keep your credit utilization ratio low.
• Don't open a ton of new accounts and/or close a bunch of old accounts all at once.

If you're worried about your credit score or aren't able to access credit because of a bad credit score or too much personal debt, we can help. Our counselors are available for free 24/7, online and over the phone, to help you assess your situation and find the best solution. And our debt relief solutions are proven to help you get out of debt 7x faster than paying on your own.