In the mortgage ecosystem, Equifax, Experian, and TransUnion are the big 3 when it comes to sourcing customer information. At present, the standard is using a tri-merge credit report, which sources information from all 3 of these companies. However, this convention is being challenged by some mortgage lenders, who only source data from 2 or even 1 of these companies. Unfortunately, omitting just 1 bureau’s data when considering a mortgage’s risk is a major loss. It is estimated that 1 in every 3 saw a credit score difference of 10 or more points when 1 bureau was omitted from the credit report. It got worse for some as 18% of consumers saw a discrepancy of 20 or more points and 7% saw a score difference of 40 or more points. While these numbers may seem small, they can make a big difference when it comes to pricing a mortgage. So how exactly does it affect the bigger picture?
For example, a 20-point difference guarantees that the consumer will be placed in the wrong pricing bucket under the current mortgage underwriting standard. For a $350,000 GSE loan, this can increase the cost of borrowing by $3,000 to $5,000 more over the loan’s lifetime. This type of discrepancy is especially problematic when it comes to higher credit scores, as individuals at a 700-credit score or higher typically get better pricing or more privileges when considering the loan’s price. However, under a bi-merge or single credit report standard, this can no longer be considered as nearly 8% of people in the 660-679 range would be inappropriately reported at the 700-mark or above.
Ultimately, to ensure the most accurate and appropriate rate for lenders and consumers alike, getting more information is better. By using the standard tri-merge credit report, you get the most accurate picture of a prospective borrower. If you want to ensure your mortgages are priced the most fairly, tri-merge credit reports are the way to go.
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Source: Equifax
