How Lenders Use Your Credit Score

Anyone who is buying a new home will have their credit score pulled by mortgage lenders. Reviewing the homebuyer’s credit score simplifies the credit application process because it gives the lender an objective way to evaluate a loan applicant’s credit history and determine a pre-approval amount.

What is a tri-merge report?

Mortgage lenders will pull what is known as a tri-merge credit report. This is a report that pulls the homebuyer’s credit score from the big three credit agencies: Equifax, Experian and TransUnion. The lender will use the middle score for your official score.

For example, if your score is 635 from Equifax, 597 from TransUnion and 680 from Experian, the lender will use 635.

Impacts on decision making

Understand that a score does not signify a “bad” or “good” person to lend to. While most lenders use a credit score as part of the process, the institution will make its own decisions about each individual loan. Some lending institutions do have a minimum score they allow, but it’s typically one factor of many that they consider when evaluating your loan application.

Some lenders may choose to give a higher interest rate mortgage to someone with a low credit score and provide a lower rate for a mortgage that will be held by someone with a high credit score. This means that a high score could save money on interest paid on the mortgage loan.

Understanding your credit score and how it affects homebuying is an important part of the process.