Equifax going to report balance/payment amount history? Is this good or bad?

[Anonymous]

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@Anonymous wrote:

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@scmami wrote:
@CrediGuyInDixie yeah that's what I gathered. I know it doesn't affect FICO scores. I'm familiar with Desktop UW SW (used to work in subprime mortgages). I missed the FHA being exempt, but next time I refinance I want to get away from FHA if possible so it will be interesting to see how this affects me in a couple years. Guess I'll definitely be changing my habits. We only carry balances during a 0 interest period, so maybe we're not too bad off.

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Finally, simply be aware that 0% deals are really not that great of a deal given current interest rates.  If the best savings accounts were earning (say) 8% interest, then a 0% offer would be really nice, since you could place the money you'd otherwise use to pay off the card in a savings account.  But the best savings accounts don't earn 8% now, as they did in the late 70s.  They earn 1%.  So the financial benefit to being a revolver is quite low, whereas the cost of being a revolver might be significant down the road for a person who wants a mortgage in a couple years (say).

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But you are ignoring the reality of credit card interest rates.  If interest rate were very high, we wouldn't be getting so many zero interest rate offers, we likely would not get any at all.

And the lowest interest rate on any card I have is 11%, the lowest I seen reported is about 7.5%.  Zero interest is a lot better than 11% or even 7.5%.

Bottom line, the credit card companies are making a killing on anyone that has to carry a balance and pay interest,  the other side of that coin is possibe charge offs/Bankrupcy. 

[Anonymous]

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@Anonymous wrote:

   But you are ignoring the reality of credit card interest rates.  If interest rate were very high, we wouldn't be getting so many zero interest rate offers, we likely would not get any at all.

And the lowest interest rate on any card I have is 11%, the lowest I seen reported is about 7.5%.  Zero interest is a lot better than 11% or even 7.5%.

Bottom line, the credit card companies are making a killing on anyone that has to carry a balance and pay interest,  the other side of that coin is possibe charge offs/Bankrupcy. 

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Hi Dragonbits!  Glad you are posting on the forum.

0% is indeed a lot better than 11% or 7.5%.  You are right.  But if that is the advantage that our CC user is experiencing, then it means he is carrying a lot of CC debt and paying high rates of interest on it.  Furthermore, we can reliably conclude that he has almost no money saved in a savings account -- because why would he be choosing to pay 11% to CC issuers and only get 1% from his savings account?  Furthermore, we can reliably infer that he is saving little toward retirement, since even the best retirement accounts earn far less on average than 11%.

In short, people who are carrying large balances and paying high rates of interest are almost all living paycheck to paycheck with little savings.  That's a giant red flag for such a person.  He's got far more serious problems than finding a new awesome credit card.  Indeed the very appeal of the 0% card is a symptom of these very serious problems.

I was starting with the assumption that our OP did not have these problems: that he was spending less substaintially less money that he brought in, that he had a strong "rainy day" fund of cash in a savings account, and that he was making strong contributions to his retirement funds.  (As I say, if that's not true, he's got other stuff to work on: like paying off all his CC debt.) 

People who are making good decisions about saving money are still often under the impression that a 0% interest card offer is an amazing deal.  And it would be an amazing deal if the best savings accounts (or CDs, or treasury notes etc.) were offering high levels of return, as they did in the late 70s.  But interest rates are so low that this is not the case.  That's what I was getting at.

[scmami]

We have savings We use the % offers on new cards mostly for the points or whatever incentive our card is offering (non store cards). And we always (3 years now) pay them before the offer expires, so the 11% isn't a factor. But the original issue was if carrying a balance at all would affect a future mortgage refi...seems maybe it will. We do make very large (30-50x) minimum payments even when taking advantage of these offers.

[Anonymous]

Great thinking, OP!

Yep, the thing that has been driving the whole conversation on this thread is whether there may now be a significant advantage in being able to show that you pay in full for all of your cards -- not just in the last two months, but for the last 24 months.  The answer appears to be yes.

Our OP can't change his past payment strategies, but can alter his future given that he is on the runup to a mortgage.  Personally if I were him I would move as quickly as I could toward never carrying any balance on any card, and ignore the 0% offer as an inducement to not PIF.

One great thing about his past is that even when he did carry balances he always paid far more than the minimum payment.  That will probably be a big help.  I am guessing that the T-R analysis done by DU does not classify a person as a pure Transactor vs. everyone else in a big lump. 

It probably puts people on a continuum, say for example on a scale of 1-5.  1 would be always a transactor for all cards for the entire 24 months.  5 would a person who often was a revolver on any card where the balance got over a certain amount and who often paid only the minimum payment.  In between would be everybody else.  Things that would push you closer to 1 might be:

Have you been a pure transactor on all your cards for the last six months?  12 months?

Even when you are a revolver, is it typically just one card with your other cards being a Transactor?

When you do revolve on a card, do you usually pay much more than the minimum payment?

Our OP will be able to show a favorable record on all these things as he approaches the time for pre-approval.  Good for you, bud!

[Anonymous]

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@Anonymous wrote:

What's new is that Fannie Mae has made it part of their DU software, which means that mortgage applicants will now be analyzed by underwriters with these trended data in mind, particularly the T-R analysis.  That's never happened before, though the timeline for doing so was announced last fall.

FHA and VA loans appear to be exempt from the requirement to use trended data in the approval process. 

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CGID, this is very helpful information to me, I am buying a house in close to a year.    Are you a mortgage broker and have you used this software?

If you have, I was wondering if you could give more information on how it is used, does it spit out a number, or risk level?    I would think, that those of us on MF who are trying to improve our scores, and keep only one card reporting a small balance would score well on this, would we not?

Also, they are only seeing info from the reporting date, is this correct? 

Thanks again!

[Anonymous]

Hi Lolacat.  I do not work in any way for the mortgage industry (or any other lender).  I have been following the development of trended data because I find it interesting, more of a hobby than anything else.  I'll be delighted to tell you what little I know.

You ask: "Also, they are only seeing info from the reporting date, is this correct?"

I am unsure what you mean.  Can you clarify?

Mortgage underwriters are the people who use DU (Desktop Underwriter).  It's a piece of software created by Fannie Mae.  It's been around for a very long time (21 years).  The latest version is DU 10.0.  Since Fannie Mae basically controls the mortgage industry, their software is used by pretty much everybody.

Here is some language about DU from the Wikipedia entry on Fannie Mae:

In order for Fannie Mae to provide its guarantee to mortgage-backed securities it issues, it sets the guidelines for the loans that it will accept for purchase, called "conforming" loans. Mortgages that don't meet the guidelines are called "nonconforming". Fannie Mae produced an automated underwriting system (AUS) tool called Desktop Underwriter (DU) which lenders can use to automatically determine if a loan is conforming....

https://en.wikipedia.org/wiki/Fannie_Mae

Here's an interesting article on DU having its 21st birthday:

http://www.fanniemae.com/portal/funding-the-market/hif/2016/du-21.html

Here's the core page for DU with a lot of Fact Sheets and whatnot.  It's really aimed at mortgage lenders so I am not sure how helpful it will be to somebody like you and me who is not actually using it.

https://www.fanniemae.com/singlefamily/desktop-underwriter

You ask:

"I would think, that those of us on MF who are trying to improve our scores, and keep only one card reporting a small balance would score well on this, would we not?"

I don't know.  That strategy is very helpful for improving your FICO score (mortgage flavor) and certainly optimizing that FICO score should be a crucial part of any prudent person preparing to buy a home.  But those FICO models are very old and do not use the new trended data. 

As far as I can tell, the way it works is that DU takes as input a number of things.  One of the things would be your FICO mortgage scores.  But DU also takes as input your actual credit reports.  The new DU software (Version 10) then does a "trended data" analysis of the data in the reports, which will no doubt classify you on a spectrum of being a Transactor (at one end) to a Revolver (at the other).  Transactors have been shown to be far less risky than Revolvers.  A mortgage lender would much prefer you to exhibit evidence of being a transactor for the last 24 months, rather than having often been a revolver.

To circle back to your question, when a person keeps many cards at $0 for a long period of time, it's unclear to me how that will be interpreted by DU.  If the card is staying at $0 with no transaction or payments ever happening for many many months, then while it is clear that it won't be classified as "revolver" behavior, you aren't showing clearly the behavior of a transactor either (which is to make transactions and then pay them off).

Thus, as a purely practical matter, if I were in your shoes, I would do the following (as long as it is easy to do):

*  Use as many cards as feels natural.  And try to use every one of your cards at least once in the next nine months. 

*  When you do, allow the cards to actually generate a statement with a positive balance.  Then, a week after the statement prints, pay it in full.

*  ALWAYS pay your cards in full from now on (or at least until you own your house).

By doing the above, you are establishing yourself as a Transactor on all your cards.

Then a month before mortgage pre-approval and again a month before formal underwriting begins, switch to a different strategy, which is to make sure all your cards are reporting at $0 except one.  This strategy will maximize your FICO scores.

In short, I would be trying to score high on the T-R analysis and on the FICO score.  The double strategy above would certainly do that.  It's also possible that using all your cards every month but making sure that most are always reporting $0 would be fine too.  Hopefully the T-R analysis would be able to see that you are making payments to all cards and therefore you must be transacting on them.  But since I am not an expert on how the T-R analysis is being done by DU, I can't say whether that would work.

If the whole idea of "trended data" and being a Transactor vs. a Revolver and so forth is not 100% clear, I encourage you to google:

Transactor Revolver Trended Data mortgage

There's lots of stuff out there.  Let me know if that helps.

[Anonymous]

Thank you CGID, it DID help very much.

I should try to let more cards report a balance at the statement end I believe.  That is another big question, which you brought up, DO the CRA's actually know that you are actively using the card, if the balance reports as zero?   Certainly the banks know, but I wonder if it triggers as an "inactive" account on a credit report or on the DU software for that particular month.    I have heard, that people applying for mortgages have been told that "inactive cards" do not help them establish a good credit history.  

I like the concept of your 2 part technique, and I may give that a try.   What I have been trying to do, is to use EACH card once a month, and pay all of them except for one (leaving that one at a very small amount) before statement close dates.       That said, I only have the cards in my sig, so it's not that complicated    

I really wish their were more transparancy for consumers.   If this software addition is a game changer, small differences in our payment history could represent a significant interest rate difference on a loan.  

[Anonymous]

Yup, all very thoughtful comments, LolaCat.  As is many times the case on discussions that happen here on the Forums, I think there is a "what should I do in practice" side to a question and "how does FICO or Vantage or DU (etc.) work in theory" side.  Both are interesting. But often there is a Practical solution that doesn't depend on knowing the complete answer to the Theory problem, the latter of which might be complex and (due to the hidden nature of the algorithms) speculative.

As far as I can tell, the practical solution is easy.  Even easier than what you have been doing.  Namely:

    * Use your cards naturally.

    * Don't worry if you don't use a particular card on a given month, but try to use each card at least a few different times a year.

    * When you do use your cards, just let the statements print naturally and then pay in full.  You can set up Autopay to do this if you want.  (Do keep your total utilization under 30% and your individual utilization under 50% -- that will happen naturally, in all likelihood.)

    * A month before any important credit pull (e.g. mortgage pre-approval) use the AZEO approach: All Zero Except One (with the remaining card a smallish positive balance, like maybe $10).

That will certainly solve the problem of scoring high on the Transactor-Revolver analysis (first three bullets) but will also solve the problem of scoring high on the old FICO mortgage model (last bullet).  Boom -- practical problem solved.  It's actually easier than what you do now -- your approach thus far has involved having to remember to pay almost all your cards to a $0 balance every month even though you are using them.

That said, there is the interesting "theory" question you raise.  How does the hidden T-R analysis module inside DU work?  Suppose you had a card that you used every month for 24 months, but which you always paid to $0, and thus it always reported as $0 to the CRA for the Balance.  Does the new T-R analysis inside DU detect that you are using that card every month?  I don't know.  In theory the designers of that new part of DU could observe that you are making payments each month (those data are certainly on your report, stretching back 24 months).  It could therefore conclude that because you are making payments, therefore you arre using the card.

Does it actually work that way, however?  I don't know.  I believe it is likely but since I don't know anyone on the development team I can't say.  Furthermore I will say that FICO doesn't work that way.  For example, even FICO 9 I think assumes that if all your cards are currently reporting a $0 balance, then you must be a person who doesn't use his cards.  There have been tools inside the CRA data for a while to detect $0 balance users, but FICO, Vantage, etc. have not used them thus far.  Thus I simply can't be sure that DU is different in this respect.

[Anonymous]

Yikes. I am really hoping that this is all a very simplified explanation of how this is analyzed. I took out some accounts that are considered 'store cards' i.e. Ashley, and these cards were used to purchase home goods. I am taking advantage of the promo periods. I would hope that there would be some analysis of these scenarios.

[Anonymous]

Hello ProfGoGetter!  I may be able to give you some practical advice,  Depends on what your particular situation is.  A few questions:

Are you planning to buy a house in the next two years?  If so, when do you guess that would be?

How many credit cards do you have?  Of these, on how many are you carrying a balance?  (By which I mean, not paying in full each month.)

On the cards where you are carrying a balance, how easy would it be to pay considerably more than the minimum payment?  For example, triple the MP?