Less Data, More Risk? A Data-Driven Look at the Future of Mortgage Credit Standards

Highlights: 

• Moving from a tri-merge standard to single or bi-merge option may reduce credit inputs and lower upfront costs, but it can potentially drive significant score volatility, creating meaningful implications for loan pricing accuracy and investor confidence. 

• Likewise, it could increase the number of credit score options, incentivizing lenders and borrowers to “shop” for the most favorable score. But a higher score may not reflect improved creditworthiness; it may only reflect incomplete data, potentially resulting in artificially elevated scores that mask underlying risk and push it downstream in the mortgage lifecycle. 

A new mortgage industry study by AD&Co paints a concerning picture if the current  tri-merge standard were to be replaced with a bi-merge or single credit report standard. The findings point to potentially costly impacts on borrowers and mortgage lenders, including less accurate loan pricing and increased borrower credit risk, which could, ultimately, drive higher mortgage rates for everyone. 

Here, we share a brief overview of the analysis and crucial takeaways every mortgage professional should know. 

A Ground-Breaking Analysis: The Data Speaks for Itself

As the cost of homeownership continues to rise, industry conversations have increasingly turned to the cost of credit and whether alternative credit scoring approaches could help reduce expenses. Most recently, attention has focused on moving from the current gold standard to a less comprehensive single or bi-merge ecosystem.

The study titled, “The Impact of Moving Away from the Tri-Merge Standard,” examines the potential negative effects this could have on decision-making and on the broader mortgage industry.  It analyzes differences in VantageScore 4.0® credit scores across a broad range of consumers using data provided by the three Nationwide Consumer Reporting Agencies (NCRAs).

VantageScore 4.0® was selected because it operates the same across all three NCRAs; any variations in scores reflect differences in the underlying credit data rather than inconsistencies that may occur between different scoring formulas. 

The study is the first-ever joint effort of its kind among all three NCRAs, using real anonymized data from all three bureaus. The results are eye-opening, revealing the hidden consequences of trading comprehensive risk visibility for cost savings. 

1. Credit Score Uncertainty and Loan Pricing Differences May Increase

The tri-merge standard aggregates data from all three NCRAs and uses the median (middle) of the three credit scores to provide comprehensive credit coverage and strong predictiveness. 

By contrast, a single or bi-merge report—essentially, a partial view of credit from one or two bureaus rather than all three—may miss key tradelines and credit insights, since the type, depth, and frequency of data reported to each NCRA often vary. The AD&Co analysis helps quantify this risk, providing the industry with much-needed insight into the potential outcomes of using less data. Less data increases the probability of materially different outcomes. 

2. “Score Shopping” May Increase, Along with Credit Risk

Under today’s tri-merge framework, lenders rely on a single, standardized mean score. A shift to single or bi-merge reporting could introduce multiple scoring options, creating the opportunity to “shop” for a score that best supports a desired lending outcome.

The study suggests this is far from hypothetical. It showed that about 9% of all consumers and 11% of those in the 640–779 range could increase their purported credit score by 20 or more points from what the tri-merge standard would otherwise show. 

At first glance, this may appear beneficial. But a higher score may not reflect improved creditworthiness, only incomplete data. When critical tradelines and risk indicators are missing, the result can be an artificially elevated score that masks underlying risk. That risk doesn’t vanish; it simply shifts downstream in the mortgage lifecycle. 

For lenders, this could translate into higher fallout rates if nervous borrowers who are on the edge of affordability get cold feet and drop out late in the process. For borrowers—especially those with thin affordability margins—it could mean becoming financially overextended or falling behind on payments. 

Ironically, having the option of choosing the “best” score could ultimately harm the borrower’s long-term credit standing.  

3. Score Cut-Offs Do Not Eliminate Meaningful Discrepancies

Some in the industry have proposed a hybrid approach based on an initial score threshold of 700. Under this proposal, if the first-pulled score is 700 or higher, it serves as the consumer’s representative score. If the initial score falls below 700, the standard tri-merge process applies, and the median score is used. 

This implies a level of reduced risk at a higher score cutoff.  However, the Andrew Davidson & Co. analysis challenges this notion. Instead, their findings show that meaningful score discrepancies persist even at scores above the commonly discussed cut-off of 700.

• 18% of consumers in the 700–779 range had at least one score that differed from the tri-merge standard by 20 or more points.

• In about 16% of cases, a randomly chosen score resulted in consumers within the 700-779 range moving to a different pricing bucket, higher or lower than the tri-merge standard.

More striking: nearly 6% of consumers with a median below 700 had a maximum score of 700 or more, with the percentage varying by credit score bin. For example, 8% of consumers in the 660–679 bin had a maximum score above 700.

In other words, close analysis reveals that a higher cutoff does not eliminate significant score discrepancies. 

The Question Lenders Should Be Asking

In a market already defined by affordability pressures and investor scrutiny, the question is not whether moving away from tri-merge reduces costs. The real question is whether the potential short-term savings justify increased pricing volatility and risk across the mortgage lifecycle, possibly compromising investor confidence and the creditworthiness of many borrowers.  

Cost matters. But when evaluating the immediate and long-term financial risks for both lenders and borrowers, credit completeness matters far more. 

Explore the full AD&Co White Paper, “The Impact of Moving Away from the Tri-Merge Standard,” for a granular, data-driven understanding of how credit risk uncertainty could affect pricing and qualification, including the unintended impact on minority borrowers and the risks posed by distorted loopholes and price-shopping incentives.

Download the White Paper now.