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The defi Team defi INSIGHT, Originations

Trended credit data reports improve loan application outcomes

In the lending industry, “big data” analysis reveals trends that describe the past to help predict the future. With this trended credit data, reports that traditionally were used to develop credit scores can now offer a means to better understand seasonal cycles, outliers in the data, an applicant’s creditworthiness, and other useful information. 

Traditional credit bureaus like TransUnion now offer trended credit data reports. In addition to their universally-used credit scores, these now include up to 30 months of credit card data. These reports show an applicant’s credit limits, balances, minimum payments due, actual payments, late payments, and amounts past due for each of the months reported. Together with an applicant’s credit score, trended credit data paints a more accurate picture of a borrower’s financial position by detailing their spending habits and ability to repay a loan.

How Trended Credit Data Reports Improve Loan Origination Decisions
More Complete Credit ProfilesTrended credit data provides a comprehensive credit profile that helps lenders assess creditworthiness more accurately.
Personalized UnderwritingUnderstanding a borrower’s long-term credit behavior enables lenders to tailor loan terms more precisely to individual risk profiles, including subprime candidates. 
Improved Pricing ModelsUsing trended credit data in pricing models enables lenders to offer more competitive interest rates based on a better understanding of a borrower’s credit history and behavior. 
Risk AssessmentLenders can better predict a borrower’s future financial behavior and assess their ability to manage debt using trended credit data.
Customer-Centric ApproachLeveraging trended credit data, lenders can focus on customer’s long-term financial health rather than short-term credit metrics. 
Fraud DetectionAnalyzing trended credit data can detect fraudulent behavior, such as sudden increases in credit utilization or abnormal spending patterns.

How Big Data Enables Trended Credit Data Reports

The information collected throughout the end-to-end loan process enables lenders to best utilize trended credit data. Reports rely on the amount, speed, variety, and reliability of this big data to make their loan processes more efficient and reliable. Using this data enhances lenders’ ability to develop insights by automating processes that support better decision-making.

This big data can be either structured or unstructured. While the use of big data can undoubtedly add to the value of trended credit data reports, it also creates challenges, especially when it comes to unstructured data.

Structured Data

Predefined and formatted information that has a set arrangement is known as structured data, which is put into precise fields within a database. When using trended credit data, reports on applicants tend to focus on subsets of this structured data. This often includes demographic information about the applicant, such as age and where they live, along with information on late payments, other loans, and other sanctioned data. Much of this type of structured transactional data goes unused.

Unstructured Data

Unstructured data is more ambiguous. It includes audio from customer interactions, PDF documents that include regulatory documents and loan applications, email communications, and other relevant documents like pay slips or mortgages. This type of data is typically underutilized, but lenders can use it to address gaps in marketing or processes, customer preferences, unmet needs, and other valuable information.

While automating the analysis of structured data is already successfully being done, because of its complexity and irregularity, analyzing unstructured data still often requires humans. However, with this unstructured trended credit data, credit reports can better consider applicants’ financial behaviors.

Trended Credit Data Reveals Financial Behaviors

Revealing applicant behavior regarding payments is invaluable to lenders. This is why an applicant with an excellent traditional credit rating often receives an automatic loan approval at the best possible terms, while one with a very poor traditional rating will be automatically declined. Good scores often undergo a review by an underwriter who will help review an appropriate loan structure for an applicant.

With subprime candidates and the higher interest rates they pay, a lender can perhaps best use this trended credit data to minimize risk to the lender while also increasing the strength of their portfolios. Basing decisions only on credit scores still means lenders will assume some hidden risk while missing out on lending opportunities. Trended credit data reports improve loan origination decisions by providing detailed insight into applicants’ financial behaviors. 

Let’s look at three potential situations where trended credit data can add value for lenders during the origination process.

We will look at:

  1. An excellent score
  2. A good score
  3. A poor score

1) Excellent Score, On the Decline

Take, for example, a trended credit data report on an applicant with an excellent traditional credit rating. The report indicates that during the past 18 months, the monthly balance on one line of credit increased an average of $540 per month, while the borrower has only been making the minimum payment each month. Another line of credit shows a similar trend, though with a less steep monthly increase. These payment trends contrast starkly with the applicant’s payments in the 12 months prior when the balances were paid in full each month.

Conclusion: The applicant faces some financial headwinds and may present more risk than the credit score indicates.

2) Good Score, Staying the Course

A trended credit data report for an applicant with a good credit score shows consistency in credit card usage and payments over the past 24 months. Except for two late payments in the previous year, it shows monthly balances were paid in full.

Conclusion: The risk associated with the applicant’s credit score is confirmed with trended credit data. Reports match the applicant to the lender’s credit policies to offer a competitive deal.

3) Not as Poor as the Score

A trended credit data report for an applicant with a poor credit score shows the applicant’s financial position as quickly improving. The most recent 18 months of payment data indicate the applicant opened a new credit card through a branded airline. Monthly balances have been increasing by an average of $175, and the cardholder pays the required amount in full each month.

Conclusion: The applicant is a much better risk than the credit score indicates. A lender can offer better terms than the credit score alone would dictate.

Trended Credit Data Reports Reduce Risk and Increase Opportunity

By combining information from a traditional credit score with a trended credit data report, lenders better understand an applicant’s current financial behavior. Trended credit data reports can confirm whether an applicant’s credit score is accurate or if there’s a discrepancy between the credit score and their current financial standing.

In all cases, trended credit data reports reduce the risk inherent in lending decisions, allowing lenders to structure deals more closely with an applicant’s actual risk. For applicants with poor credit scores, trended credit data reports can increase lending opportunities by revealing an applicant’s improving financial position letting lenders extend credit that would have otherwise been denied based solely on a credit score.

Getting Started

defi SOLUTIONS is redefining loan origination with software solutions and services that enable lenders to automate, streamline, and deliver on their complete end-to-end lending lifecycle. Borrowers want a quick turnaround on their loan applications, and lenders want quick decisions that satisfy borrowers and hold up under scrutiny. With defi ORIGINATIONS, lenders can increase revenue and productivity through automation, configuration, and integrations and incorporate data and services that meet unique needs. For more information on trended credit data reports, contact our team today and learn how our cloud-based loan origination products can transform your business.

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