For mortgage applications, two credit reports are better than three

Buying three of something is seldom cheaper than buying two. This is especially true in the mortgage process when it comes to credit reports and scores. 

Yet the Big Three credit bureaus are trying to convince policymakers that forcing consumers to purchase three credit reports and six scores to get approved for a mortgage is somehow better for consumers than only requiring two reports and four scores. What the Big Three are lobbying for is a giant step backward, one that would cost consumers more money and eliminate competition. 

In October 2022, the Federal Housing Finance Agency (FHFA) announced that it would no longer require mortgage borrowers to provide a “tri-merge” report with credit reports and scores from all three of the major credit bureaus. Instead, borrowers only need to supply — and pay for — a “bi-merge” report with information from two of the credit bureaus. This helps homebuyers in two ways. 

First, two reports are cheaper than three — period. It’s simple math. This cost savings is increasingly important as all of the other costs of getting a mortgage are going up. Both the credit bureaus and FICO have recently hiked their prices significantly.

Second, only requiring two credit reports will introduce a small but useful amount of competition into the credit reporting market. Consumer advocates have frequently noted that the credit reporting industry is an oligopoly, given that there are only three companies that control the entire market. But in the mortgage market, it’s actually a functional monopoly. There is no competition due to the requirement to use credit reports from all three credit bureaus. 

Requiring reports from only two of the three credit bureaus will at least move the market from a functional monopoly. It might even provide an incentive for the credit bureaus, which are often intractable, to improve their practices. For example, if lenders had been upset enough about Equifax’s data breach, they might have decided to choose Experian and TransUnion reports if a bi-merge report had been an option in 2017.

The credit bureaus have pushed back hard, and they are using questionable arguments to protect their monopoly. As a result, Republicans on the Senate Banking Committee sent a letter to FHFA arguing that “the bi-merge would inherently result in incomplete data being reported to” Fannie Mae and Freddie Mac. But that argument falls short given that the lenders who report the vast majority (at least 85 percent) of information are reporting to all three credit bureaus. These include large credit card issuers, student loan servicers, mortgage lenders/servicers and auto lenders.

TransUnion has also claimed that as many as 2 million consumers who would have a qualifying middle score over 620 — the minimum required — will no longer qualify with a bi-merge report. This is because they will have an average credit score under 620 when only two credit scores are considered.

But TransUnion’s own research finds that another 1.8 million consumers who would not qualify for a Fannie Mae/Freddie Mac mortgage with a tri-merge report will now become eligible with a bi-merge report, i.e., they will end up with a higher average credit score over 620. And frankly, it may be a more theoretical than practical point, since borrowers with scores under 700 are more likely to end up with mortgages from other programs, such as the Federal Housing Administration. 

The credit bureaus have also raised the specter of consumers with a “thin file” being harmed because of their limited credit history. But consumers with thin or no files actually have a good alternative in Fannie Mae and Freddie Mac’s programs that underwrite these consumers using bank account transaction data to show rental payment history. 

Don’t be fooled. At the end of the day, two is still cheaper than three. And competition is still better than a monopoly. The FHFA made a smart move when it changed the requirement for a tri-merge credit report to a bi-merge report, and we should applaud the FHFA, not criticize it.

Chi Chi Wu is a senior attorney at the National Consumer Law Center focusing on consumer credit issues including fair credit reporting, credit cards and medical debt.