Tri-merge credit reporting is essential for lenders and borrowers

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Imagine applying for a mortgage only to be denied because key factors that could help you qualify were never considered. Or paying thousands more in interest on your first home when your on-time rent payments go unconsidered by lenders who pull credit reports lacking this tradeline information. This isn't a hypothetical scenario; it's the very real risk millions of Americans would face if some in the industry get their way.

Chatter about moving to a single or bi-merge credit pull for mortgage lending — replacing the longstanding tri-merge credit report requirement — isn't just noise about fixing something that isn't broken. A single-pull credit report relies on data from one source, while a bi-merge credit report combines information from two different bureaus and a tri-merge report consolidates data from all three major bureaus. This unexplored proposition could deter people from achieving the American dream of homeownership.

A close look at the issue reveals that the tri-merge model, which uses data from all three nationwide consumer reporting agencies, or NCRAs, continues to serve individuals and lenders exceptionally well. That's why we were encouraged to see the Federal Housing Finance Agency Director Bill Pulte reaffirm the current system, making clear that Fannie Mae and Freddie Mac will continue to require tri-merge reports.

In an environment where some are pushing to cut corners, Director Pulte's thoughtful approach is the right approach for today. His commitment to maintaining the tri-merge requirement, while still pushing for innovation in credit scoring, reflects a comprehensive understanding of what's at stake and an acknowledgement that future innovations are still possible.

Today, each report supplied in a tri-merge can provide lenders with access to different data, as creditors and other data providers don't always report to all three major NCRAs, thereby offering lenders a more comprehensive picture. For example, as I mentioned earlier, one credit report might capture rent payment history that is not reported to the other two bureaus. The timing of when one report verifies data versus another might include a more recent and accurate snapshot of the consumer's current balances. For these reasons, omitting even one tradeline on a consumer's report can create an incomplete view of someone's creditworthiness, and that can have real financial consequences. This is especially true for consumers who may need credit the most or are on the verge of not qualifying for a loan.

In fact, research indicates that integrating rental payment data into credit reports could increase the credit scores of many credit-invisible consumers, enabling them to qualify for loans and access better interest rates. By leveraging a tri-merge credit reporting approach, lenders can include this critical rental payment information, resulting in a more accurate assessment of creditworthiness. This approach not only helps consumers secure financing but also promotes financial inclusion for those who may otherwise be overlooked.

In fact, recent research from TransUnion and Equifax demonstrates the dangers of eliminating even one bureau from the process. Data from Equifax shows that missing a single tradeline can cause up to 27.8 million consumers to drop to lower score bands, leaving 10 million consumers potentially unscorable and causing 26% to shift from loan-eligible to declined. TransUnion found that borrowers affected by the bi-merge system could pay an additional $6,600 in mortgage interest over the loan's lifetime. This is the type of potential consumer harm that could come under a single-pull or bi-merge system.

Politics and policy

Democrats urge FHFA's Pulte to 'do his job'

In a letter Friday, U.S. Sens. Elizabeth Warren, D-Mass., Chuck Schumer, D-N.Y., and Cory Booker, D-N.J., called on Pulte to address housing unaffordability instead of concentrating on efforts to destabilize the Federal Reserve.

By Maria Volkova

August 29

The reality is that today's credit data landscape is more diverse and complex than ever before. New datasets are helping to score consumers who have traditionally been credit invisible or underbanked. These datasets have added to the variation of information between the NCRAs. This consumer-permissioned data, including digital wallets and utility payment history, is not always reported to all three major bureaus, making the tri-merge approach even more valuable. If anything, the proliferation of these new financial information streams has heightened the need for comprehensive reporting, not diminished it.

To be clear, innovation in credit scoring is a welcome development. Director Pulte has opened the door to score competition through models like VantageScore 4.0 and FICO 10T — both of which incorporate new types of data and promise more predictive power. And as Director Pulte and FHFA have wisely recognized, there's no reason that innovation in scoring must come at the expense of complete, tri-bureau reporting.

Support for preserving tri-merge isn't limited to regulators. On Capitol Hill, lawmakers have pushed legislation that would codify the tri-merge requirement in law. Their concern is clear: Stripping down the reporting structure could increase lender risk, undermine consumer outcomes, and create unnecessary volatility in a market that depends on trust and consistency.

Ultimately, mortgage lending is about risk — understanding it, managing it and pricing it appropriately. Tri-merge credit reporting gives lenders the best tools to do just that. It ensures that consumers are evaluated based on the fullest, most accurate picture possible, and it protects the broader housing market from the consequences of bad underwriting decisions.

We applaud Director Pulte for preserving this foundation, even as he leads on other reforms. His approach reflects something we don't see enough of in policymaking: a willingness to separate what's worth improving from what's already working.