What credit reports are used for mortgages

In a Nutshell

When you apply for a mortgage, the lender checks your credit to get a picture of your financial health before deciding whether to lend you the money. Rather than pulling separate reports from the three big consumer credit bureaus, lenders can snap up a single residential mortgage credit report that combines multiple reports into one. Here’s what you need to know about these reports.

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If you’ve ever checked your credit scores, it’s likely you got them separately from the three major consumer credit-reporting bureaus: Equifax, Experian and TransUnion. Or you might use a service that shows you more than one. If you obtained more than one score or report at once, you may have noticed they were similar. But if you’re checking your credit to get a mortgage, know that those scores don’t tell you the whole story.

A mortgage lender trying to figure out if you’re creditworthy wants a complete picture of how you use credit. But it can be challenging to put that picture together by looking at a single credit report from one of the three major consumer credit bureaus. That’s because lenders and other creditors may not report to each of the big three, resulting in each bureau having different information for you.

To help solve this, lenders can obtain special compiled credit reports that merge multiple reports into one, giving a more-complete picture of your credit history.

There are two types of compiled credit reports a mortgage lender might pull to evaluate your finances. There’s the so-called “tri-merge” report: a single, easy-to-read credit report compiled from the individual reports issued by the three major consumer credit bureaus. And then there’s the residential mortgage credit report, which compiles at least two reports from the three bureaus and typically offers additional information to help lenders assess how risky a borrower you are.

• Tri-merge report vs. residential mortgage credit report
• When are credit reports used in the mortgage process?
• What if I need to improve my credit?

A compiled report can be a convenient tool for a mortgage lender because it consolidates your credit history from multiple credit bureaus into one organized rundown.

Because compiled reports combine info from multiple credit bureaus, they present a more-complete credit profile than a consumer sees when pulling a report from just one bureau, says Aaron Morse, mortgage loan officer at the New Jersey–based Affinity Federal Credit Union. This is in part because, again, your lenders and creditors may not report your information to all three bureaus — or it may take one bureau longer to update your report — so each bureau’s report and scores might differ slightly.

Mortgage lenders may be using the tri-merge credit report, or they may be using the more in-depth residential mortgage credit report, or RMCR, which they obtain from a third-party company that specializes in them. You typically won’t be able to get one of these on your own.

According to Morse, borrowers are sometimes surprised by what turns up in a tri-merge report because they only check their report at one credit bureau before visiting his office. But tri-merge reports occasionally surface details that may not be shown in one or more of the consumer credit reports if, for instance, a merchant reported to only one credit bureau.

While a tri-merge report will essentially show the same information you’d see by pulling your own credit reports from all three major credit bureaus, a residential mortgage credit report contains additional details you won’t find when you check your credit reports yourself. That’s because an RMCR is designed to give the lender more insight into the risks of lending you a lot of money — in some cases hundreds of thousands of dollars — for a mortgage. For example, an RMCR may also include your employment history and current income.

When are credit reports used in the mortgage process?

A lender will typically pull and review your credit reports once you’ve completed your mortgage application. Morse advises against having your reports pulled by the lender when you’re just starting the home-buying process, because it’s considered a hard credit inquiry, which can hurt your credit scores.

Instead, he recommends using a lender who’s willing to first talk about your budget and ensure you’re financially ready to move forward. That way you can be certain a hard inquiry will be worth it.

What if I need to improve my credit?

When you’re preparing to buy a house, it’s a good idea to check all three of your credit reports as issued by the three major consumer credit bureaus — essentially creating your own compiled report. Having all three credit reports can give you a good picture of your overall credit health, which can allow you to dispute any errors or investigate any problems you find before a lender sees them.

And because your residential mortgage credit report contains many of the same factors that are in your individual credit reports at the three major consumer credit bureaus, the steps you can take to clean up your reports and improve your credit are the same for an RMCR as they are for an individual report, Morse says.

The consumer credit bureaus may prohibit or frown upon lenders sharing RMCRs with borrowers, but the report contains a lot of useful information on how you look to lenders. And while it’s not advisable to make an issue of it if the lender says no, it won’t hurt to ask the lender for your residential mortgage credit report.

About the author: Emily Starbuck Gerson is a full-time freelance writer in San Antonio who’s been covering personal finance since 2007. She has written for numerous national publications and enjoys helping people make better decisions … Read more.