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 worksA
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 repairProponents
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.
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.
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