Mortgages are one of the largest types of loans available. As of 2022, the average mortgage loan size for a new home purchase was $453,000.[1] Since mortgages involve such substantial sums of money, their underwriting process is one of the most rigorous.
During the underwriting process, lenders often use special mortgage-specific underwriting tools, such as tri-merge credit reports and rapid rescores. They also weigh applicants’ credit scores heavily. As a result, some aspiring homeowners may wonder if they can strengthen their credit scores using alternative credit data.
In this article, we’ll break down everything you need to know about tri-merge credit reports, rapid rescores, alternative data, and other mortgage underwriting resources.
Table of Contents
What Are Tri-Merge Credit Reports?
Traditional credit reports are put together by the three major credit bureaus: TransUnion, Equifax, and Experian. In contrast, tri-merge credit reports are generated by credit reporting agencies, like Certified Credit.
Tri-merge credit reports, also known as three-bureau reports or merged credit reports, combine data from all three credit reports into one. The reason this is necessary is because each credit bureau may receive slightly different information from creditors. For instance, one creditor may only report to one or two of the credit bureaus, rather than all three.
Tri-merge credit reports are used in the mortgage industry because they provide a more comprehensive look at a borrower’s creditworthiness. When lenders are loaning out such large amounts of money, creditworthiness is crucial.
What Data is Included Within a Tri-Merge Credit Report?
Tri-merge credit reports look very similar to single bureau reports. They contain the following credit information from all three credit bureaus:
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- Tradelines
- Credit inquiries
- Public records
- Credit scores
- Fraud checks
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Tri-merge credit reports also display the credit score associated with each credit bureau’s credit report.
During the underwriting process, mortgage lenders typically throw out the highest and lowest credit scores and use the middle credit score to determine a borrower’s eligibility and rate.
What Are the Benefits of Tri-Merge Credit Reports?
As we mentioned earlier, creditors aren’t required to report data to all three of the credit bureaus. As a result, some creditors may only report to one or two of the credit bureaus. If mortgage lenders only look at one credit report, they may miss out on a lot of valuable information about an applicant.
Tri-merge credit reports are a superior underwriting tool for mortgages because they include the majority of available credit information about a borrower. In turn, they enhance the quality of mortgage lenders’ loan decisions.
How Can Mortgage Lenders Educate Borrowers on Tri-Merge Credit Reports?
If you’re a mortgage lender, you’re probably very familiar with tri-merge credit reports. However, your borrowers may not be. Many credit consumers don’t realize that they have multiple credit scores at any given time. They often assume that they only have one FICO® credit score.
As a result, your applicants may review their FICO credit scores on their credit card providers’ websites or free credit scoring websites, only to be shocked when their mortgage credit scores are different.
As a mortgage lender, it’s a good idea to explain to your applicants that mortgage credit scores are calculated using different algorithms than other types of consumer credit scores. This way, they won’t be surprised when their mortgage credit scores are higher or lower than their consumer credit scores.
What are Mortgage Credit Scores?
Federally-backed home mortgage companies, Fannie Mae and Freddie Mac, have automated underwriting systems that require specific types of credit scores. These mortgage credit scores include older versions of FICO scores, such as:[2]
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- FICO score 2 (Experian/Fair Isaac Risk Model v2)
- FICO score 4 (TransUnion FICO® Risk Score 04)
- FICO score 5 (Equifax Beacon 5)
If a mortgage lender intends to sell their loans to Fannie Mae or Freddie Mac, they must use these types of mortgage credit scores to assess applicants’ eligibility.
If a mortgage lender plans to keep a loan in their portfolio rather than selling it on the secondary market, they can choose to look at other types of credit scores instead.
Do Tri-Merge Credit Reports Consider Alternative Data?
Alternative data is credit data that isn’t traditionally included on credit reports, such as:
- Rent payments
- Utility payments
- Income and employment information
- Bank account information
- Buy now, pay later loan payments
- Other consumer-permissioned data
Some newer credit scoring models include this information to help people with thin credit files fill out their payment histories and enhance their credit scores.
While alternative data may help consumers qualify for some loan products, mortgages typically aren’t one of them. That’s because mortgage credit scoring algorithms don’t take into account alternative credit data.
Can Alternative Data Help Consumers Get Mortgages?
In most cases, alternative credit data won’t help borrowers qualify for mortgages.
The only exception would be if a lender plans to keep the loan in their portfolio, rather than selling it to Fannie Mae or Freddie Mac. In this case, the alternative credit data could bolster a borrower’s positive payment history and influence a lender to approve their application, even though the data won’t be factored into their mortgage credit score.
What Are the Alternatives to Tri-Merge Credit Reports?
Tri-merge credit reports are the gold standard when it comes to mortgage lending. However, they aren’t the only type of credit report that mortgage lenders use.
Mortgage lenders may also look at:
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- Prequalification Soft Pull Reports – Prequalification soft pull reports show basic credit file data from one, two, or all three credit bureaus, depending on what a mortgage lender requests. They also contain mortgage credit scores, just like tri-merge credit reports.While prequalification soft pull credit reports can’t be used for underwriting purposes or decision-making, they can help mortgage lenders evaluate aspiring homeowners’ eligibility during a prequalification assessment.Aspiring homeowners may want to apply for prequalification to find out where their credit scores stand before they start their home search. If an applicant discovers that their credit score is too low, they can take steps to raise it before formally applying for a mortgage.
- Refresh Credit Reports – Refresh credit reports allow lenders to make sure that applicants’ credit scores and debt-to-income ratios are the same at the end of the loan origination process as they were at the beginning.On average, the loan origination process can take around 30 days to complete.[3] During this time, some applicants may take on more debt than they had during their original credit pulls.Pulling a Refresh credit report can help lenders ensure their customers’ eligibility is still in good standing before closing, preventing costly fallouts and other pre-closing snafus.
What Are Rapid Rescores?
Rapid rescores are another valuable resource available to mortgage lenders. Rapid rescores allow mortgage lenders to expedite the process of updating their borrowers’ credit reports, often within three to five business days.
Rapid rescores are useful in the following situations:
- A borrower has an active dispute with one or more of the credit bureaus – Borrowers may file disputes with the credit bureaus if they believe certain information within their credit files is inaccurate.Unfortunately, Fannie Mae and Freddie Mac won’t accept loans for borrowers who have active disputes on their credit reports. That’s because disputed credit data isn’t included in mortgage credit scoring algorithms.The rescore process can expedite the resolution of disputes in one of two ways:
- The borrower can choose to remove their dispute
- The borrower can get the incorrect information corrected, resolving the dispute
Once the credit bureaus have updated a borrower’s credit report accordingly, the credit file can be re-pulled without any disputes, allowing it to meet Fannie Mae and Freddie Mac’s standards.
- A borrower needs to raise their credit score by a few points quickly – Another scenario where rapid rescores are useful is when a borrower is on the cusp of qualifying for a certain mortgage program.Let’s say a borrower has a credit score of 618, but they need a 620 to qualify. By paying down their credit card balance and reducing their credit utilization ratio, they may be able to increase their credit score by the necessary points.
Rather than waiting around for this reduced credit card balance to reach the borrower’s credit reports, the mortgage lender can expedite the process by submitting the payment data directly to the three credit bureaus. After the updated information has made it onto the borrower’s credit reports, the lender can re-pull the credit score and hopefully see the desired credit score increase, enabling them to approve the borrower and offer them a better rate.
Rapid rescores are especially useful in today’s housing market. Nowadays, homes often receive several offers within a short time frame. Competition amongst buyers is steep. If buyers can’t move fast enough because their credit report isn’t updated, they could lose out on the home of their dreams. Rapid rescores resolve this problem.
Certified Credit: More Than Just a Score
As you can see, tri-merge credit reports and rapid rescores play important roles in the mortgage lending process.
Here at Certified Credit, we provide mortgage lenders access to these tools, as well as:
- Other types of affordable credit reports
- Automated lead generation and prequalification tools
- Automated verification of income and employment (VOE)
- Credit score improvement tools
- Fraud and risk support
- Settlement services
- Money-saving strategies
In addition to our innovative tech tools, we’re also known for our exceptional customer service. We help mortgage lenders of all sizes resolve issues that prevent their loans from closing successfully.
Are you ready to set your mortgage lending business up for success? Sign up for a consultation with Certified Credit today.
[1] Experian. Which Credit Scores Do Mortgage Lenders Use?
https://www.experian.com/blogs/ask-experian/which-credit-scores-do-mortgage-lenders-use/
[2] CNBC. The average size of a new mortgage just set a record, as home prices continue to climb.
https://www.cnbc.com/2022/02/16/the-average-size-of-a-new-mortgage-just-set-a-record.html
[3] Realtor.com. How Long Does It Take to Get a Mortgage? Longer Than You Might Think.
https://www.realtor.com/advice/finance/how-long-does-it-take-to-get-a-mortgage/
