Why Do Lenders Charge For Credit?
Great Question! Your loan estimate and closing disclosure detail all the costs for your mortgage, and you will see the cost for the credit report listed in box B “Services Borrower Did Not Shop For.” These services are all billed to you at the exact cost that the provider charges, but unlike your settlement agent, you are not able to choose which provider. The appraisal report is also included in this section, and when paid prior to closing, the cost for these reports is reduced from the cash you pay at closing.
The costs of credit reports have increased significantly in recent years, sometimes by as much as 400% since 2022. Mortgages are qualified based on the middle of three scores, and typically require a “tri-merge” credit report which includes the data from all three reporting agencies: Equifax, Experian, and TransUnion. The FICO score used is generated by the Fair Isaac Corporation, which presently has a monopoly on credit scoring for mortgages and has sharply increased its cost per file.
When the lender does not charge the borrower at the time of the credit pull, we still pay the credit agency for the report. Industry standard is that around 10% of credit reports pulled result in a closed loan, so for lenders who do not charge the credit report up front, there would be on average $900 per loan in cost of credit reports for borrowers who did not close on a loan for whichever reasons. As former CFPB director Rohit Chopra said, “In some sense, borrowers that close aren’t just paying for the credit reports and scores for themselves, they’re also paying for inflated fees on the applicants who don’t close.” Ever wondered what that “Origination Fee” covers? Now you know (and why we don’t charge you one)
We are committed to providing the best available terms to our borrowers by limiting our corporate costs that do not directly benefit you, the customer. We don’t have expensive offices, middle managers, sky boxes at sporting events, or a big advertising budget. We believe that the cost of other people’s credit reports who do not close on a loan falls into that category, and that our borrowers would rather save hundreds in loan costs by pre-paying this portion of the closing cost.
“OK, but what if I really don’t want to pay for my credit report?” We get that! Perhaps you aren’t ready to buy for some time but want to make a plan for next year, or you’re shopping several lenders, or you’re looking for a very specific property or situation that is going to be hard to find. We have options! Free credit pulls are available with certain investors, where you would only need to pay for a report if you choose another lender when under contract, or we are happy to review your provided report from www.annualcreditreport.com which is free for you to access once per year, or provide a rate quote based on your stated credit score.
