Industry Data Shows Single Credit Report Model Could Cut Consumer Access

Lenders use tri-merge credit reports in the mortgage industry to assess credit applicants. But some in the industry wish to base lending decisions on a report from a single credit reporting agency and are calling for change. 

A new report from Andrew Davidson & Co. suggests that using a single credit report would lead to higher mortgage rates especially for subprime borrowers. This new study will only add to the debate surrounding tri-merge credit reports. 

A Closer Look at Tri-Merge Credit Reports

A tri-merge credit report contains consumer credit information from the three major credit reporting agencies, Equifax, Experian, and TransUnion.

This type of report is also known as a 3-in-1 credit report. Businesses, lenders, and financial institutions use tri-merge credit reports to assess applicants for loans, mortgages, and credit cards. 

The Push for a Single Credit Report

Bob Broeksmit, President and CEO of the Mortgage Bankers Association, spoke before the House Subcommittee on Housing and Insurance on Feb. 11.

He called for Fannie Mae and Freddie Mac to give lenders the flexibility of ordering a single credit report when assessing borrowers, Scotsman Guide reports. 

New Report on Moving Away from Tri-Merge Credit Reports

The research from Andrew Davidson & Co. reveals that using a single report from a single credit reporting agency rather than the tri-merge approach would lead to less accurate mortgage pricing and ultimately higher mortgage rates. 

Subprime borrowers, in particular, would likely pay more for their mortgages. As the research points out, the potential for a pricing difference because of limited information is higher for subprime borrowers with credit scores of 600 to 639. And the difference is significant.

The research found subprime borrowers had at least one credit score differing from the tri-merge report by at least 20 points. 

Better for Risk Management 

The information gleaned from a tri-merge credit report is better for risk management than information gained using one report from a single credit reporting agency. A tri-merge credit report offers a more complete picture of a consumer’s credit risk, the research concludes. 

“We are going through a modernization phase in the mortgage industry,” said Sanjeeban Chatterjee, Director of Behavioral Modeling at Andrew Davidson & Co. “At such times, it is important to understand the impact of the changes so that the stakeholders can make the right decisions. 

“This study shows why knowing more is better from a risk management and affordability perspective.”

The Bottom Line

Debate is growing in the mortgage industry about tri-merge credit reports. Some want to use a single credit report from a single credit reporting agency when assessing the risk of a mortgage customer.

But new research suggests doing so would lead to less accurate mortgage pricing and higher mortgage rates. Subprime borrowers would be the hardest hit if this change should take place.