One credit bureau might be key to your success when buying a house. A bureau might report negative items you can remove or miss positive entries you can add.
Mortgage companies consider reports and scores from all three credit bureaus: Experian, Equifax, and TransUnion.
Compare all three reports for inconsistencies that hurt your qualifications.
Fixing errors at one bureau can help you get a more favorable decision from your mortgage lender. You might turn a denial into an approval or get a lower interest rate.
Small changes can have an enormous impact. For example, a 1% interest rate reduction can save $70,000 over a 30-year, $300,000 mortgage.
Lenders Use Three Bureaus
Mortgage lenders use reports and scores from all three credit bureaus, so each one is important. Homebuyers should focus on the bureau with correctable errors that hurt their qualifications the most.
Three Bureau Reports
Mortgage lenders use all three credit bureau reports to avoid missing significant derogatory events. They use merged reports to make binary decisions (approve or deny).
Compare the three reports to find negative items worth removing.
Merged Reports
The average mortgage starting principal is over $300,000. Given the size of these loans, extra underwriting precautions make sense.
Tri-bureau merged reports combine Experian, Equifax, and TransUnion data to show an applicant’s complete payment history. Third-party reporting companies remove duplicate entries to create a single file.
Binary Decisions
Government-sponsored enterprises, such as Fannie Mae, buy mortgages from lenders. Fannie Mae sets the pass-fail criteria the mortgage underwriting team must follow when evaluating the tri-bureau merged reports.
Fannie Mae denies applicants with these significant derogatory events occurring within four or seven years.
- Bankruptcy (Chapter 7 or Chapter 11): is a legal process for debt relief.
- Foreclosure: a lender takes and sells a property to pay off debt.
- Deed-in-lieu: the deed to the real property is transferred back to the servicer.
- Preforeclosure sale: a property sale results in a payoff of less than the total amount owed.
- Chargeoff: a creditor decides there is little chance of collecting the debt
The mortgage lender will deny your application if one credit bureau report has one of these entries but the other two do not. Correcting the anomaly with this reporting agency is a critical step.
Three Bureau Scores
Mortgage lenders use industry-specific scores from each of the three bureaus. They pick the middle score and ignore the others.
Compare the three scores to find inconsistencies worth correcting.
Mortgage Scores
The credit scores mortgage lenders use differ from the general-purpose scores consumers see from the various monitoring services.
Mortgage scores forecast future delinquency on secured home loans. Each bureau supplies a version optimized to their systems. Only lenders see these scores.
- FICO ® 2: Experian
- FICO ® 5: Equifax
- FICO ® 4: TransUnion
General-purpose scores predict delinquency on all credit types: secured, unsecured, revolving, or installment. Lenders use them mainly for unsecured credit cards and personal loans. Monitoring services provide these scores to consumers.
- Vantage ® 3.0
- FICO ® 8
Middle Score
Home loan lenders use the middle mortgage credit score to make underwriting decisions. This score comes from a single reporting agency. They do not use the merged tri-bureau report to calculate a comprehensive score.
The lowest credit score supplied by the three bureaus is most likely to contain an anomaly not found on the other two reports.
- Errors originating at lenders frequently appear on all three reports
- Mistakes unique to one represent identity-matching issues
- Missing positive information (fragmented files)
- Derogatory data from another person (merged files)
Score Correlations
Home loan companies rely on mortgage scores that are inaccessible to consumers. Still, general-purpose scores that consumers can view are closely related.
The bureau with the lowest general-purpose score will probably have the lowest mortgage score, giving clues on what to look for. Compare the report from this bureau to the two other files and look for identity-matching issues.
- Missing positive information (fragmented files)
- Derogatory data from another person (merged files)
A successful dispute means the lowest score could swap places with the first or second. Focus on improving your weakest area is the best recipe for success.
Correct Critical Anomalies
The most critical credit bureau has correctable anomalies that harm home loan qualifications. Fix these issues before applying for a mortgage to avoid denials or higher interest rates.
Data Matching
Data matching limitations may cause one credit bureau to have different information than the other two. Understand these shortcomings before filing a dispute to boost your chances of success.
Matching personal information is challenging because the data comes from thousands of sources with inconsistent names, addresses, birth dates, and social security numbers.
The agencies can never be 100% confident when matching data under these circumstances. As a result, they often make two errors.
- Fragmented files split data from one person into two or more records.
- Merged files combine data from two or more people into one record.
Fragmented Files
Credit bureaus often omit positive entries when they split information from one person into two or more reports. Combining these files could boost the lowest score enough to swap places with the middle score.
Dispute missing entries that appear on the two other bureau files. Most lenders and county courthouses report to all three agencies. However, each bureau handles mismatched identifying information differently.
Follow these links to file a dispute.
Merged Files
The most critical errors occur when a credit bureau merges files from two or more individuals. The consequences are most severe and frequent with public record items.
- Public records often lead to instant declination. Bankruptcies are automatic disqualifiers. Judgments suppress credit scores.
- County courthouses publish public record items, but the identifying information is often poor, leading to mismatches.
Dispute any negative entries that do not belong to you. Provide the bureau with a precise listing of current and previous addresses. Avoid abbreviations and PO boxes. Include any legal name changes. Do not use nicknames. Verify your birthday.
