Applying for a Mortgage? Why All Three Of Your Credit Scores Matter

If you’re in the market to buy a home, checking your credit score will most likely be one of the first steps you take before applying for a mortgage. Not only will this tell you where you stand credit wise, but it will also help you pinpoint any errors or areas that may need improvement before you apply. After all, the higher your FICO score, the better your interest rate and terms, which could save you several thousands of dollars over the life of the loan.

What many new homebuyers don’t realize, though, is that when you apply for a home loan, all three of your credit scores matter. That’s right, you actually have three credit scores, one for each of your three credit reports from the three main credit reporting agencies:  Equifax, Experian, and TransUnion.

With almost any other type of loan—whether it be a credit card, personal loan, auto loan, etc.—a lender will typically pull only one of your credit reports and one of your credit scores to determine whether or not to approve your application. But when it comes to mortgage loans, there is an exception to the “one report, one score” lending decision process.

When you apply for a mortgage loan, the mortgage lender will pull all three of your credit reports and FICO scores—not just one of each. And if you’re applying for a mortgage jointly—with a spouse or significant other—the mortgage lender will actually pull all three of their credit reports and scores, too.  This means, six credit reports and six credit scores will be accessed when applying for a mortgage jointly.

Weeding through three to six different credit reports and scores can get complicated. To simplify and streamline the process, the lender will pull what is called a “Residential Mortgage Credit Report,” or “RMCR.” These reports are more commonly known as a “Tri-Merge” report because it combines all three credit reports and scores into one merged file for each applicant.

Once the lender accesses your tri-merged report, he or she wil then use your middle credit score—dismissing the highest and lowers of your credit scores —to make the lending decision. This is why it’s so important to make sure you have good credit scores at all three of the credit reporting agencies. Otherwise, you simply wouldn’t know which one of your three credit scores would be your middle score.

Credit Expert Witness, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

Categorised in: Credit Report, Credit Score, Getting Credit, Money & Identity

This post was written by John Ulzheimer