Recently, there have been proposals to change the standard tri-merge credit score to a single- or bi-merge score standard. The effects of this change could be significant. At present, a tri-merge standard provides the most reliable picture of someone’s creditworthiness, which helps not only the consumer but also the lender make the best decisions and often results in expanded financial opportunities. By switching to a one or bi-standard credit score, the picture becomes less certain, and mortgage pricing could increase. A traditional tri-merge standard uses the median of three scores, and by missing only one bureau’s data, over one-third of applicants saw an effect of at least 10+ points. Additionally, without the use of a tri-merge score, there is the opportunity of “score shopping,” which can artificially inflate a borrower’s purported credit score by 20 points or more. This can also dilute the overall risk performance of borrowers, which in turn actually leads to a higher approval threshold for everyone. When considering the options of the traditional tri-merge standard versus one or bi-merge, the clear answer is to go with the standard. This approach captures a borrower’s fullest risk profile, ensures fair and accurate loan pricing, and prevents score manipulation, as well as stabilizes the market.
Source: Equifax