B3-5.3-05, Credit Utilization (05/31/2016)

When manually underwriting a loan, the lender must review the borrower’s credit report to evaluate their use of revolving credit by comparing the current balance on each open account to the amount of credit that is available to determine whether the borrower has a pattern of using revolving accounts up to (or approaching) the credit limit. Patterns of revolving credit spending are credit risk indicative.

Credit histories that include revolving accounts with a low balances-to-limits ratio generally represent a lower credit risk, while those that include accounts with a high balances-to-limits ratio represent a higher credit risk.

A credit history that includes recently opened accounts that are at or near their limits may indicate that the borrower is overextended or overly reliant on the use of revolving credit—and, when this is combined with a delinquent payment history, it is generally an indication that the borrower has not managed their credit successfully.

Note: Lenders are not required to analyze trended credit data in the credit report. See B3-5.2-01, Requirements for Credit ReportsB3-5.2-01, Requirements for Credit Reports, for additional information.