Ever since the dawn of credit reporting, the information has looked relatively the same. Your lenders reported information to one, two or all three of the national credit reporting companies (CRCs) based on your most recent loan payment activities and balances.
This method of reporting is informally referred to as a “snapshot in time” because your credit reports represented information based on any one single day in your credit lifecycle.
And because credit scoring systems consider the information on your credit reports at the exact time your credit report is accessed or “pulled,” your scores are also based on a snapshot in time and not necessarily the actual balances on your credit accounts that particular day. The credit reporting and scoring systems have operated under that structure for the better part of the last three decades.
Newer credit report data
Over the past several years the CRCs have been collecting and maintaining information that represents how you manage your balances and payments over time. This information is formally referred to as “trended credit data” or “time series” data.
The information includes the chronology of your balances, your minimum payment requirement and often your actual payment amount. For example, reports and the scoring models based on them can now decipher between whether you have an account with a balance averaging $4,000 over the past six months versus someone who charged the same amount just in the previous month but normally has a lower balance.
This represents a considerable upgrade in credit report information. Rather than a credit report representing a snapshot in time, it now represents your most current balances and payments for the past 24 months.
How trended credit data can help my scores
Credit card users who pay their bill in full each month don’t pay interest. So, there’s a tremendous savings to never revolving a balance. But it can also improve your credit score if the scoring model leverages trended credit data. That’s because those who pay off their balances every month can be identified and rewarded for practicing this positive credit behavior.
A model that includes trended credit data also takes into account whether a consumer makes payments above the minimum amount required. So if you make payments on your car loan for more than is minimally required, your score could improve.
The most current version of the VantageScore credit score, VantageScore 4.0, does utilize trended credit data on your credit reports, and it is available to lenders now.
The impact of holiday spending
According to a recent poll from VantageScore Solutions, 37 percent of 2018 holiday shoppers plan to use credit cards for their purchases. That’s great because you have very consumer-friendly fraud protections when you use your credit cards ... plus you might earn points and rewards! The drawback, of course, is the temptation to overspend and end up with large credit card balances going into the new year, making a payment for the full amount due challenging.
Large credit card balances can result in lower credit scores. The reason is because of the credit scoring metric known as “revolving utilization,” which represents the percentage of your credit limits that have been used. According to the same VantageScore poll, the issue of utilization is not an unknown. Indeed, 84 percent of the poll respondents acknowledged understanding that spending a high percentage of their credit limit can hurt their credit scores.
Here’s where a credit score that considers trended credit data can help you relative to a credit score that does not. If you historically pay your credit card in full, or pay more than the minimum consistently, your holiday overspending won’t result in as profound of a score impact. The reason: The credit scoring model recognizes that your holiday shopping is atypical relative to the other months because it can see and consider how you normally use your credit cards.
If the scoring model only considered the snapshot in time after your holiday spending spree, it would factor that balance in and potentially cause your score to drop.
The ethical credit score hack
A logical question at this point would be, “what can I do to protect my scores during the holiday season if a lender isn’t using trended credit data?” The answer is to use your credit card but make several payments during the month. You don’t have to wait until the due date to make a payment on your credit cards. You also don’t have to wait until the statement shows up to make a payment.
Assuming you haven’t charged anything more, making multiple payments during the month will ensure that when your statement is generated it will have a lower balance. Since the balance from your statement is what’s reported to the credit reporting companies and factored into your credit score, you’ll go a long way to protect or even improve your score.
And the best benefit? You either won’t pay any interest on your credit card or the interest you pay will be as minimal as possible.