The most important credit bureau or score when buying a house is the one your lender will utilize to change an underwriting decision for a loan application.
Because of the large loan amounts, mortgage companies typically use all three bureau reports. The outlier, if any, could be the one to change approval to a denial.
Therefore, you should focus on identifying the agency that reports an adverse trade line that does not appear on the files of the other two bureaus.
As you will shortly learn, this one anomaly could impact your Tri-Bureau merged report and make the middle credit score lower than it might otherwise be.
Credit Bureau Used by Mortgage Lenders?
The most important credit bureau when buying a house contributes unique data to the reports used by the mortgage lender. Because home loans are typically much heftier than other transactions, the underwriting process is often more thorough.
Mortgage companies will use different tools that take a more in-depth look at your financial history and capacity.
Tri-Bureau Merged Reports
The most critical credit agency when buying a house is the one contributing incremental adverse payment history to a Tri-Bureau merged report. Because mortgage companies are lending enormous sums of money, they do not want to overlook anything.
Therefore, banks pull files from each of the three consumer reporting agencies and utilize software to create a merged report. The lenders then apply rigid criteria to the combined files.
The criteria are binary and rules-based. Mortgage lenders might automatically decline an applicant with a specified number of negative entries on their merged report.
- Collection accounts
- Charge offs
Dispute these negative items before applying for a mortgage – especially if they do not belong to you – which frequently occurs when the entry appears on only one of the three files.
Residential Mortgage Reports
When buying a house, the essential credit bureau could also be a fourth agency that supplements data found in the Tri-Bureau merged report. Home loan companies frequently use residential mortgage reports that are more in-depth than the standard files provided by Equifax, Experian, or TransUnion.
- Tradeline updates
- Employment and income verifications
- Apartment rental verifications
- Borrower interviews
For example, an agency that confirms your employment and work record could be the most critical to approval for marginal applicants.
What Credit Score is Used to Buy a House?
When buying a house, the most important credit score is the one your mortgage company uses to make an underwriting decision. These points-based equations provide holistic evaluations.
However, it is not always easy to pinpoint the score lenders will use because they often pick the middle rating for an industry-specific overlay equation.
The middle credit score is most significant when buying a house because mortgage companies ignore the highest and lowest number provided by Equifax, Experian, and TransUnion.
While software can combine files to create a Tri-Bureau credit report, the scoring companies built each equation to optimize the data at each agency. In other words, there is no Tri-Bureau score for lenders to use.
Instead, mortgage lenders pull three bureau scores and use the middle result – not an average or blended number.
The bureau with the lowest credit score often correlates with unique negative entries (see above). A successful dispute could push that number high enough to become the middle number then.
A mortgage overlay score is most important when buying a house because lenders often prefer to use an equation optimized for their industry. However, consumers rarely see these specialty equations when utilizing educational resources.
- General-purpose equations predict future delinquency for all types of trade lines
- Unsecured credit cards
- Unsecured personal loans
- Secured auto loans
- Secured home loans
- Mortgage overlay equations forecast future delinquency on secured home loans only, providing a more relevant estimate.
The industry often demands the mortgage overlay equations because homeowners treat this secured debt differently than other obligations. For a good reason, people facing financial hardship hate losing their home to foreclosure and become delinquent on unsecured credit cards and personal loans first.