Looking to buy a house? Even if you’ve started polishing your credit history months in advance, you could still run into a nasty surprise when it’s time to talk to your lender.
“There are many situations where people think their credit score is great and it’s really not,” says Jeanne Rose, a mortgage broker in southeast Iowa. “In some cases, people don’t understand how credit scoring works, or they lose track and have forgotten about late payments. And in some cases, there are mistakes on their report that are pulling their score down.”
If it’s an easily fixed issue that’s dragging down your report and time is of the essence in qualifying for your dream home, a rapid rescore can come to the rescue. Instead of waiting a month or more for the credit bureaus to update your files, you can correct your record in a few days.
Why use rapid rescoring?
Even if you don’t get rejected for a loan because of information in your credit report, a lower FICO score can mean a higher interest rate. Even a 1 percent rate difference can translate into tens of thousands of dollars in extra interest payments over the life of a mortgage.
When disputing errors in your credit report, the credit bureaus have 30 days to investigate, but it may take much longer to actually get inaccurate information removed.
Enter rapid rescoring, a practice that has been around since around 2000 — and that has been getting increasingly popular among mortgage brokers and homebuyers.
Rapid rescoring is a three-stage process:
- First, prospective borrowers work with a mortgage broker or other mortgage professional, who will use credit analysis software to pinpoint factors that may be lowering scores for no good reason.
- In the second step, the consumer works with the mortgage broker to correct the issues.
- In the third step, the rapid rescoring system communicates with the three credit bureaus to ensure that the credit file and score get updated. This can take as little as 72 hours, according to William DiPaolo, CEO of Cogent Road, which provides analysis software for the mortgage industry.
Once that new, correct information is reported, you should be able to qualify for a more attractive loan.
Keep in mind that rapid rescoring should not be confused with credit repair services — companies that offer to help remove negative information from your reports. Such services are often scams, as it’s illegal to remove things like bankruptcies, judgments and liens from your report. The only negative information a rapid rescore can get removed from your report is erroneous information.
When to use rapid rescoring
There are two types of credit report issues that might justify a rapid rescore, DiPaolo says: data errors and credit usage issues.
When it comes to data reporting errors, these are more common than one might think.
“There’s a vast amount of data out there, and oftentimes a card issuer will misreport a credit card balance or continue to report a mortgage that has been paid off,” DiPaolo says. “These are simple reporting errors, and it’s important that borrowers and lenders evaluate the report to make sure there are no inaccuracies.”
Then there are the credit usage matters.
“People often use credit in a way that harms their credit score without realizing it, but often these are things that can be easily fixed,” DiPaolo says.
If you have a long history of unpaid debts, rapid rescoring won’t help you. Yet some bad habits can be remedied quickly. For example, many people have several open credit card accounts but use only one. This keeps their scores lower than they would be if they used all their credit accounts actively. And of course, if credit card balances are too high, they may need to be brought down to bring credit scores up.
By closing inactive cards or paying down high balances — and then telling the bureaus you did so via a rapid rescore — you can give your score a quick lift.
The costs of rapid rescoring
Rapid rescoring does not come without a cost — typically $30 to $35 per account that needs correction. Multiply that by three credit rating agencies, and costs can pile up. Some mortgage brokers absorb these costs, while others pass them on. Still, if it can shave a percentage point off your mortgage, the costs might be well worth it.
Can you do rapid rescoring on your own without a fee? Theoretically, yes, if you’re willing to do a little legwork and wait a bit longer for results. While consumers don’t have access to the expedited dispute resolution services credit rating agencies offer to mortgage lenders and auto finance companies, there are ways to resolve issues on your personal credit report that may be holding up the processing of a loan.
Once a mortgage broker does the credit analysis, and you have made the recommended changes, you can ask the credit card issuer to send you a statement with the new balances. Then fax those to the credit bureaus and ask them to correct your credit record.
“If a consumer has a legitimate proof document from a creditor, they can submit that document to Experian as part of the dispute process,” says Kristine Snyder, Public Relations Manager at Experian in an email. “We offer an online dispute process, and while the Fair Credit Reporting Act mandates that we have 30 days to resolve disputes, the vast majority are resolved in 14 days or less.”
All credit rating agencies offer online dispute services for consumers, as well as 800-numbers to call if your prefer to initiate the dispute via phone.
To track results, consider signing up for a daily credit monitoring service that enables you to follow updates to your credit reports and pull your scores. Most services charge between $14.95 to $17.99 a month, a fee that includes up to three soft pulls of your credit scores.