Mortgage lenders check borrowers’ credit reports for a good and simple reason — to ensure they can afford a home loan. But sometimes credit problems are on the reports, which can lead to the loan being denied.
Sometimes borrowers know about these problems well in advance of applying for a home loan, and have the time to try to resolve them. If they learn about them in the middle of the home loan approval process, clearing negative information from credit reports can take a month or more, which may be too long for lenders and the mortgage application may be denied.
Help is available, but you have to act fast. It’s a process called rapid rescoring, and it can help boost your credit score by 100 points in a few days.
Why need rapid rescoring?
Here are some credit problems that could make getting a mortgage loan difficult:
- Credit score a little too low to qualify for the best interest rate on a mortgage.
- High credit utilization ratio.
- Late credit card payment.
- Inaccurate credit bureau information, such as old balances, incorrectly reported delinquencies, and collections placed in error.
If you get copies of your credit reports months before applying for a home loan and can fix the problems early, then getting the best mortgage rate shouldn’t be a problem.
If not, rapid rescoring can help by allowing a lender or mortgage broker to quickly correct inaccurate credit bureau information, usually in three to five business days. Your credit score is then recalculated after the errors are fixed.
If you’re in the middle of buying a house, rapid rescoring can be the difference between getting a loan and not being approved.
Again, it only works if you’re trying to quickly fix errors on credit reports, or if you can do what’s needed to fix them within five days — such as paying off credit card bills and lowering your credit utilization rate.
How rapid rescoring works
Individuals who contact the credit reporting agencies to fix errors on their reports can wait 30-45 days for a response. Fixing basic errors is just the start. Rapid rescoring can fix them in as little as three days. Here’s an example of how rapid rescoring can help a home buyer:
Suppose you’ve just found out you’re on the cusp of qualifying for a lower interest rate on a loan if you can improve your 715 credit score by only five points.
Pay down the outstanding balances on your credit cards to reduce your credit utilization ratio — the percentage of credit you’re using compared to your credit limits — and dropping the ratio below 30 percent could be enough to increase your credit score by 10 points or more.
Lowering a credit utilization ratio is the main reason to use rapid rescoring. Another is to simply solve errors on credit reports that shouldn’t be there at all.
For example, bankruptcies are sometimes listed on credit reports for longer than the 10 years they’re allowed to be. Or a late payment was reported, but you have proof that you paid that credit card bill on time and fixing the error through rapid rescoring is worthwhile.
A rapid rescore doesn’t dispute information on a credit report. It only seeks to report accurate information. There may be a fine line between the two, and your loan provider who is providing the rapid rescoring service should be able to help you determine which errors to focus on.
Rapid rescoring isn’t an attempt at manipulating a credit score. The point is to fix errors quickly and see a credit score rise so a home loan or other large loan can be approved quickly. Unresolved credit disputes can still lead to a mortgage being denied.
Only mortgage brokers and lenders can provide rescoring to their mortgage loan clients. They’re forbidden from charging the borrower any part of the $30 to $45 per account, per credit bureau being updated. That may make them reluctant to offer the program.
If you’re using rapid rescore, don’t use a credit repair company to try to fix your credit first. These companies charge to dispute credit information, whether the information is correct or not.
They often use a loophole in the Fair Credit Reporting Act. Creditors have 30 days to respond to a request for information. If it isn’t, then the disputed information must be removed from the credit report.
To get creditors to take more than 30 days to respond, credit repair companies will bombard them with multiple requests, knowing that a response won’t likely come within a month.
However, that type of manipulation, if it results in a credit score going up, could come back to haunt someone who uses rapid rescoring and later has their home loan sold to another lender, or the debt they disputed sold to a collection agency.
If a home loan is sold, a second credit report is pulled and the banks could request the first report to see if the borrower tried to manipulate their credit. If an unpaid credit card bill was removed from a credit report, only to return when a collection agency gets involved, it could cause the second lender to not take on the loan.
The best thing to do when considering rapid rescoring is to listen to your lender and resolve any credit report problems in the ways they recommend.
Or better yet, check your credit score months before applying for a home loan, and fix the problems long before you talk to lenders.