Understanding the Changing Cost of Credit: Facts vs. Fiction

Highlights: 

• The dramatic rise in the cost of mortgage credit is driven by a staggering 1,800% increase in third-party credit score costs since 2020, which is projected to account for 46% of the total credit cost by 2026.

• Lenders can mitigate increasing costs and loan "fallout" (loans that do not close) by using Pre-Qualification and Pre-Approval solutions early in the loan origination process to delay the investment in the mandatory, full tri-merge credit report until viability is confirmed.

The escalating cost of mortgage credit is a critical challenge for lenders, fueling significant industry discussion. To manage origination costs and risk effectively, it is essential for lenders to look at the data and understand the true drivers behind these changes. This article breaks down the cost of a full credit assessment to show that the dramatic surge in expense is not due to the underlying consumer credit data, but is instead driven by third-party credit score costs, which have increased by a staggering 1,800% since 2020. At Equifax, we believe it is critical to look at the data to understand how these costs affect your bottom line.

Deconstructing the Value Proposition

To understand the breakdown of these costs, lenders should look at what goes into an Equifax Mortgage Credit Report. It is a bundle of two distinct elements:

1. Consumer Credit Data: This is the foundation. Equifax performs data collection, maintenance, and risk management on 3.6 billion tradelines for 252 million consumers. Included in the credit data is technology, security and compliance management, investor integrations. Simply put: without this consumer credit data, there is no credit score.

2. The Credit Score: Provided by a third party, this component contributes the algorithm, credit modeling, and compliance.

The Real Driver: Credit Score Inflation

While the tri-merge credit report remains the industry’s gold standard for comprehensive risk assessment, the cost dynamics within that report have shifted dramatically. The analysis shows the cost of credit is driven largely by increasing credit score costs, not credit report data costs.

Since 2020, the price changes have been dramatically different:

• Surging Score Costs: The cost of a credit score has increased by 1,800%, jumping from $0.63 in 2020 to average of $12.00 today (including re-issues).

• Share of Overall Credit Cost: In 2020, the credit score accounted for just 9.5% of the total cost. By 2026, that share is projected to grow to 46%.

Today, the cost of the score has nearly eclipsed the cost of the credit data itself.

Managing "Fallout" to Protect Profitability

Rising costs are compounded by the "fallout" reality. The biggest impact on a lender’s profitability is loans that do not close. In 2020, roughly 65 out of 100 applicants closed; in 2026, that number has dropped to 35 out of 100.

Lenders, however, are not without strategic options, and as your consultative partner, we guide you on how to mitigate this risk. While a tri-merge credit report is mandatory for final underwriting, you have key choices during the initial shopping phase:

• Smart Selection: You can choose to pull reports and/or scores from one, two, or all three bureaus early in the process as a soft pull. All three bureaus offer Pre-Qualification and Pre-Approval solutions to help lenders reduce costs early in the loan origination process.

• Cost Control: By verifying a borrower's credit profile and income and employment information upfront, you can delay the full tri-merge investment until a loan is confirmed as viable.

A Strategy for Lowering Costs

There is a significant opportunity for savings on the horizon. The move by the Federal Housing Finance Agency (FHFA) to adopt VantageScore 4.0 marks a shift toward affordability. This transition is projected to deliver a potential $1 billion in savings to lenders and borrowers.

Navigating the current cost environment requires a clear view of the facts. By understanding that legacy third-party scores are the primary driver of cost increases, lenders can better strategize their underwriting processes to protect margins while continuing to serve borrowers effectively.

Learn more about VantageScore 4.0 for Mortgage.