A few credit score points can mean the difference between a good
mortgage rate, a lousy one or getting a loan at all. But take
heart: If errors are dragging down your score, you can get them
fixed, just in time for your much-anticipated closing.
Rapid rescoring, a practice employed by mortgage lenders and
brokers to help lift clients' scores to qualify for better loans,
allows borrowers to get accurate information updated into credit
files within a few days, rather than waiting weeks or months for
the credit bureaus to do it on their own.
That faster timetable could save you thousands of dollars on
your loan. In the 2012 mortgage market, "Raising someone's middle
FICO score from 699 to 720, for example, will save 1.25 percent in
fees," says Joe Parsons, a senior loan officer at PFS Funding in
California. "In our residential mortgage practice, we
frequently do rescores for borrowers. The cost is minimal, and the
improvement in mortgage pricing is very significant."
"When you're in a tight lending environment, every single point
counts," adds Karen Carlson, director of education for the
nonprofit Florida credit counseling agency InCharge Debt Solutions.
That's especially true, she says, if you have a middle-of-the-road
credit score and are hoping to take advantage of today's record-low
interest rates. "It's hard to qualify for a loan, but if you
qualify, the rates are phenomenal," she adds.
How rapid rescoring works
A rapid rescore is essentially "an unofficial updating of the
credit file," says Wayne Sanford, president of the Texas-based
credit consulting firm New Start Financial.
For example, if you pull your credit reports and see that there
are legitimate errors on them that are pulling down your credit
score, a rapid rescore can help you get those errors corrected much
faster than if you tried to dispute them yourself.
"If you try to do it yourself by doing a dispute directly with
the bureaus, then they have 30 days, technically, to investigate
the dispute and get back to you with an answer," says Mindy
Leisure, director of product development for Advantage Credit, a
Colorado-based company that provides rapid rescoring services for
loan officers.
However, if you have a rapid rescoring service get the errors
corrected for you, they'll provide proof to the credit reporting
agencies that the errors are bogus and have your credit score
recalculated to reflect the changes, usually within a few days.
Your mortgage broker may also recommend a rapid rescore if you
have high balances on your credit cards and just need to add a
handful of points to your score to get the loan you want. "Loan
officers have access to something called a 'what-if' simulator,"
says Sanford. "A what-if simulation is basically a mathematical
model that the mortgage companies work with to say, 'What if they
paid off their credit card?'"
If a loan officer sees that you can boost your score by enough
points to qualify for a lower-interest loan, he or she may ask you
to pay down your credit cards to below 30 percent of your credit
limit and have you print out proof of your new balance.
That information will then be expedited to the credit reporting
agencies so they can update your file without waiting for the
credit card issuer to report your updated information. "There are
some credit cards that report to the bureaus at the beginning of
the month, some at the end of the month, some only every other
month," says Leisure. "By doing a rapid rescore, we can get that
information corrected within three business days."
For Byron Nelson of Dallas, getting his score updated faster
meant getting approved for a home loan that he may not have
qualified for otherwise. Just seven points shy of his target credit
score, Nelson paid down one of his credit cards and sent the proof
back to his lender, which initiated a rapid rescore. Having
previously raised his credit score from the low 500s to the
mid-700s, the approval that he received soon after was a major
victory. "It just changed my life, drastically, for the better,"
says Nelson.
Rapid rescoring is not credit repair
Proponents of rapid rescoring are quick to point out that it's not
a form of credit repair -- an industry whose bad apples promise,
illegally, to erase accurate negative information from consumers'
credit reports. Rapid rescoring should only be done through a
mortgage broker or lender. "I'd be a little leery actually of
anything that offered a rapid rescore directly to the borrower,"
says Leisure. "That almost borders on credit repair and when it
comes to credit repair, I just say 'no.'"
Typically, a rescore costs between $25 and $30 per updated
account. However, your mortgage lender or broker is supposed to pay
for the service, not you, says Leisure.
"I know there are a lot of mortgage brokers who pass the cost of
a rescore on to their borrowers. But they really aren't supposed to
do this," she says. That's because credit reporting agencies view
rapid rescore requests as an "expedited dispute process," she says
and, under the Fair Credit Reporting Act, borrowers aren't allowed
to be charged for disputing inaccurate information. "A lot of loan
officers will tell you they are not aware of this, but they are,"
she adds. "It even states on our forms that the mortgage company
fills out to request a rescore that the borrower cannot be charged
for it."
It's also important to remember that the only information you
can dispute is inaccurate information, says PFS Funding's Parsons.
"What we find is when somebody's got a low credit score, they have
lots of excuses for why this [negative information] is on their
report," he says. However, you can't explain away accurate
blemishes, such as missed credit card payments.
Nor can you make them magically disappear. "A lot of people
don't realize that," he adds. They will pay off a delinquent
account and expect it to fall off their report. However, it doesn't
work that way, he says. When it comes to negative but accurate
information, all you can do is wait up to seven years for the
negative information to disappear.
Quick updates for a fast-moving world
The good news is if your complaint is legitimate, you have a
good chance of getting it rescored when you need. That's a big deal
for consumers who are used to faster answers, says InCharge Debt
Solution's Karen Carlson.
"In today's world of apps and instant feedback and real-time
data, I think that rapid rescoring is something that people are
going to expect," says Carlson. As people get used to on-demand
answers, waiting a month or more for a credit score to be
recalculated just isn't going to cut it. "Consumers are demanding
these real-time updates in order to achieve their financial goals,"
she adds.