Home shoppers who haven’t checked their credit reports months before applying for a home loan may be in for a shock when they visit a loan officer.
A host of problems could pop up: Their credit score could be a little too low to qualify for the best interest rate on a mortgage, they’re using a high percentage of their credit, or a credit card payment they sent on time is shown by the creditor as arriving late.
A rapid rescore can help. And it can help with a quick mortgage approval turnaround of days instead of a month if the issues can be quickly resolved.
How rapid rescoring works
A rapid rescore is a process done by a lender or mortgage broker to quickly fix credit report errors that can hurt a credit score. It’s a process that can only be done by a lender or a company that specializes in rapid rescoring and has access to credit reporting company data that is pulled from credit bureaus, says Christopher Lauria, president of Legacy Credit & Debt Advisors in Frisco, Texas that works with mortgage companies.
Rapid rescoring takes three to five business days, while consumers who try to improve their credit score by contacting a credit company can spend 30 to 45 days on fixing a bad credit report, Lauria says. One reason is a credit service legally has 30 days to respond to a request, which is what they normally take with requests from individuals, he says.
“The rapid part is people are in the middle of a mortgage and they’re ready to get a house,” he says of why home buyers want a rapid rescore.
How a rapid rescore helps
If you requested your credit reports months before seeking a home loan, then you should already know if you have high credit utilization, collections or other bad credit problems that should be fixed before you get a loan.
But if you’re just now finding out about the errors and you want to resolve them quickly so you can buy a home, then a rapid rescore can be used to raise your credit score by 100 points or more within a few days. But that’s only if the negative information can be cleared from your credit profile quickly.
For example, paying a credit card down so that a credit utilization ratio — your outstanding balances compared to your credit limits — is less than 30 percent can boost a credit score by 10 points or more, says Thomas Nitzsche, a spokesman for Clearpoint, a credit counseling service based in Atlanta.
That could be enough to improve a 715 credit score to 725, where a 720 score is the cutoff to get a lower interest rate on a loan, Nitzsche says. That’s where rapid rescores are mostly used — improving credit scores a few points to get a better loan rate.
“You’re not going to find too many people who are just right on the cusp of doing something like that that will qualify them for a mortgage,” he says.
Most rapid rescores are done to lower a credit utilization ratio, Lauria says, to less than 40 percent of outstanding debt, with 35 percent the sweet spot. Instead of waiting a month for a creditor to report the utilization ratio to a credit bureau, a rapid rescore can update it within days.
But there are other reasons to get a rapid rescore, with most dealing with credit report inaccuracies, he says.
If you have proof that a payment was made on time when a bank says it wasn’t, that could be an error worth fixing, Lauria says.
Bankruptcies shouldn’t be on a credit report for more than 10 years, but some will mistakenly keep them listed on the report longer, says Lauria, who has seen bankruptcies that are 13 years old on credit reports.
“Enough of your credit history follows you a lot longer than you think,” he says.
The costs of rapid rescoring
The Fair Credit Reporting Act doesn’t allow borrowers to be charged for disputing inaccurate information on their credit report. Rapid rescoring fees are paid by the lender, and can cost $20 to $40 per credit account that’s being checked by each credit bureau.
Updating the three major credit bureaus for three or four credit accounts can get expensive. Some lenders may average all three credit scores, while others may just use one credit bureau’s score, Nitzsche says.
Or if you want to do it yourself, you can obtain a free copy of your credit report one per year from each of the three major credit bureaus: Equifax, Transunion and Experian. If done a month or more before applying for a home loan, it will give you enough time to review the reports and fix any errors.
A lender will also request your credit report, and may recommend what you can do to improve your credit score.
Not a credit repair
A rapid rescore doesn’t dispute information on a credit report. It only seeks to report accurate information. It’s not the same as the services offered by credit repair companies, which help people dispute debts or try to resolve them with creditors, Nitzsche says.
While rapid rescoring is done with information that a customer knows is inaccurate and is trying to fix, credit repairs dispute information whether it’s correct or not, he says. There’s a loophole that credit repair companies often use to dispute credit report information, Nitzsche says.
Creditors legally have 30 days to respond to a request for information. If the information isn’t provided within 30 days, then the disputed information must be removed from the credit report.
A credit repair company can bombard a creditor with multiple requests, knowing that the creditor is unlikely to get back to them within 30 days and that the disputed information must then be removed, Nitzsche says. It can be a short-term solution, however.
If it’s a debt being questioned, then the problem with that loophole, he says, is that the debt could be sold to another collection agency and still follow the customer.
If a credit score bump will help you qualify for a better home loan, then a rapid rescore could be worthwhile. But ideally, it’s best to get your free credit reports six months or more ahead of time and take care of any errors, Lauria says.
“You definitely want to prepare yourself,” he says.