Credit bureaus are actually legally and technically named Consumer Reporting Agencies, or CRAs. Bureau is a word that applies to government agencies. CRAs are private enterprises, not government agencies. There are three major consumer reporting agencies, or CRAs, that are used for consumer credit reporting: Experian, Equifax, and TransUnion. Sometimes CBC reports under Equifax, and Experian used to be TRW.
How Mortgage Lenders Use the Credit Reports
With many credit checks by creditors, credit card companies, auto dealerships, etc., often only one CRA is used. Each creditor, known as the client, also supplies data to the CRA on the performance of those to whom credit has been extended in the past. Before your mortgage application file gets reviewed, all three CRAs are compiled into a special report, known in the mortgage industry as a tri-merge.
Because each CRA often specializes in a particular region or perhaps only certain clients (creditors and merchants) and not others, the mortgage credit tri-merge serves to provide data that could be missing from one or even two of the other CRAs. It is not unusual for a mortgage broker or mortgage loan officer to pre-qualify a prospect using only one CRA. Then after getting excited over the excellent credit and high score, drop into despair when he or she discovers major problems in one or two of the other CRAs on the tri-merge.
How Home Loan Lenders Determine Your Score
The score mortgage lenders use to determine whether they will even consider underwriting or reviewing the complete application file is almost always the middle score, or mid-score, of all three CRAs. So, if you have a 700 score on one, and 580 and 610 scores on the other two, you are assigned the 610 score. Not so good by today’s standards. Obviously, it’s wise to check all three CRAs for your scores if wish to keep on top of your credit rating. Simply go online for a service that you can use to access your credit reports, or Google each one for information if you need to query any items.
Your credit scores are usually created from the data collected by a system known as FICO, the acronym for Fair Isaac Corporation. The formulas used are secret, but there has been enough observed to tip off many consumers about what to do and not do for your credit score ratings. Because not all three CRAs obtain and report the same data, it is possible to have a wide variance in the scores, as in the above example.
The FICO score indicates a risk factor within the most current time frame. This means a little negative credit in the past few months will harm your rating considerably despite several years of good credit. Conversely, the further back in history your negative credit was reported, the less it affects your current scores. Information that can help you adjust or maintain your scores will be covered in Managing Your Credit Scores. Unless where you've applied requires it, don't pay off old collections. Paying those collections won't improve your scores.
Middle Score OK, Now What?
So the mid-score allows you to get through the door. But there is more the lender will review on the tri-merge as well. For example, even though credit scores are generated automatically after six months of credit history, most lenders want to see longer credit histories over short timers. It is also common for different lenders and different home loan programs to require a variety of different types of credit histories as well.
More on this in another article, How Mortgage Lenders Review Credit.
Paul Louis - Paul Louis has written several articles for a variety of subjects. He has retired from the mortgage - real estate madness in the USA and ...
