Are you planning to buy a home or refinance your mortgage? Paying more than your minimum credit card payment will soon increase your odds of getting approved for your mortgage.
Starting June 25th, 2016, Fannie Mae will update their mortgage underwriting guidelines to benefit consumers who pay down their credit card balances.
What is Trended Credit Data?
Starting June 25th, 2016 Fannie Mae, the leading source of financing offered through mortgage lenders, will incorporate “trended credit data” collected by the credit bureaus into their loan approval guidelines.
Trended credit data, collected by the credit bureaus since 2014 (but not utilized by mortgage lenders until now), includes the amount owed, minimum payment due, and the payment amount made each month on revolving accounts. Prior to the collection of this data, credit reporting data included only the current balance, credit limit, and whether the payments were made on time. Beyond tracking on-time payments, Trended Credit Data provides insight into a consumer’s debt management practices.
Giving weight to how borrowers pay off credit debt puts more power in their hands to control their credit evaluation. – Eric Rosenblatt, Fannie Mae, VP, Credit Risk Analytics and Modeling
What it Means to You
In a nutshell, statistical data indicates that a consumer who pays more than the minimum payment is less likely to default on their obligations. Hence, Fannie Mae wants to reward those people by giving weight to these good payment practices.
Fannie Mae further states that consumers who pay only the minimum payment will not be penalized, so if you have been paying only the minimum payment, no worry.
On the other hand, if there is a mortgage application in your future, and you have the means, pay more than your minimum credit card payment and you will increase your odds of approval.