Trended Data – Impact on Credit Decisions
This is the third article in a 5-part series. We originally published this post on December 20, 2016, and updated it on July 17, 2019.
Why Trended Data Impacts Credit Decisions
Today, many lenders rely strictly on a static credit score. This provides a snapshot in time of a consumer’s credit profile. For example, two people with vastly different spending patterns both reflect a 720 credit score at a specific point in time. However, all you see is a score. Based on this score, both consumers look like they carry the same risk and may qualify for the same interest rate on a loan.
Incorporating trended credit data into your decisioning criteria may show you a very different picture.
Trended data solutions (also called time series, historical or longitudinal data) analyze a set of data over a specific period of time to identify patterns of past behavior. These patterns are indicative of future behavior.
Trended Data Provides a Different Picture
The two customers above reflect a traditional point-in-time credit score of 720. But you get a very different view of their financial behaviors if you consider:
- How much and how fast they’ve paid down their debt over the past six months
- How much they’ve charged on their open credit lines over the past year
In this illustration, Customer A is charging increasingly more on his revolving lines of credit — and paying less each month. Customer B is actually paying much more than his minimum payment each month, driving down his total balance. All things equal, to which customer would you choose to extend credit?
Depending on your risk appetite, you may prefer to extend credit to the revolver (paying the minimum and carrying a balance each month) or you may prefer to extend credit to the transactor (paying all or most of his revolving debt each month). Analyzing dynamic spending and payment behavior over time can help you see beyond a point-in-time snapshot of a consumer’s credit file. As a result, this can help you make a more informed credit decision.
Trended Data Solutions Drive Growth
At Equifax, trended data is a key ingredient in a number of our solutions, helping to maximize customer value and deliver more predictive insights. Learn how our trended data solutions can help you drive more profitable growth and better manage risk.
Furthermore, check out the other articles in this series:
Recommended For You
Since the last U.S. recession in 2008, financial risk management has seen significant changes. Lending requirements are tighter, verification procedures […]
This question sounds absurd. But this is one of the most important questions lenders must ask themselves when making consumer […]
Calibrating premium to risk is crucial to your business – and the business of daily life for your customers. What […]
Risk models eventually become less predictive or relevant due to evolving market conditions. New and improved versions routinely replace the […]