What Does Three Credit Reporting Mean?

Reader Question: I was reading a home buying article recently, and it kept talking about the importance of three credit reporting when trying to get a mortgage loan. What does three credit reporting mean, and how does it affect me when applying for a loan?

The article was probably referring to the fact that there are three credit-reporting companies in the United States. They are Experian, TransUnion and Equifax. These privately-held companies are basically big data vaults that maintain historical financial data on U.S. consumers, in the form of credit reports. So when the article used the phrase three credit reporting it was talking about the collective reporting efforts of these three separate companies.

Now let's move on to the second part of your question: "How does three credit reporting affect me when I apply for a mortgage loan?"

You can think of the information contained within your credit reports as a snapshot of your past financial behavior. If you have been financially responsible in the past, then your credit report should reflect this. (I use the word "should" because it's not uncommon to find errors in a credit report.) On the flip side, if you have a habit of missing bill payments, or if you've had a bankruptcy in the past, then these negative items will also show up on your report.

The information provided by the three credit-reporting agencies is used to create your credit scores (you have more than one of those, as well). And this is where mortgage approval comes into the picture. When you submit an application for a mortgage loan, the lender will review at least two of your credit scores to see what kind of financial history you have. If your score is high, you'll have a good chance of getting the loan -- and getting a good interest rate on the loan. But if your score is bad / low, you might have trouble getting qualified for the loan.

So the important thing to remember about three credit reporting is that your financial behavior in the present will affect you in the future, any time you seek financing from a lender. Your financial activity shows up in your three credit reports, which are then converted into scores. Lenders will then use those numerical scores when considering you for financing.

I hope this answers your questions about three credit reporting and I wish you well in your home buying experience!