Everyone knows that the rate you get on your mortgage can cost or save you thousands over the term of your home loan.
But did you know that you may be able to influence (lower) that rate while you are sitting in the lender’s office with a quick and easy fix known as a “rapid rescore”? Let’s take a closer look at this money saving tool.
Your credit score is an important piece of the pie when it comes to getting a mortgage, especially in terms of the interest rate you will eventually qualify for. For that reason, you will want to put your best foot forward in terms of your credit score.
Typically, this means getting your credit report in advance of making a mortgage application, looking for errors, disputing any errors you find and paying down balances so that your credit utilization ratio is at 25 percent or lower. Then you might order a credit score to see where you fall and for what rates you qualify.
Still, surprises can crop up at the last minute when the lender orders a score for you and it is different from the one you thought you had. The difference can be because lenders often use a different score (FICO or VantageScore) or score version (FICO 6, 7, 8 or 9, or VantageScore 3.0 or 4.0) from what the consumer gets.
Here is where the term “rapid rescore” can begin to sound intriguing. You can’t order a rapid rescore on your own – your lender must do it for you. But that doesn’t mean you won’t benefit from a better understanding of what a rapid rescore might be able to do for you.
What is rapid rescore?
A rapid rescore is a way to get more current information onto your credit report, usually for the purpose of securing a mortgage (although it might be used for other lending purposes).
If you discover correctable errors on your credit report (like an account listed that does not belong to you) and provide documentation to have those removed, a rapid rescore can get those items removed quickly from your credit report.
Or, if you significantly reduce the balances on your credit cards or even pay them off, before your credit card makes its monthly update to the credit bureaus, rapid rescore can get those payments posted faster.
A word of caution here: if you choose to pay off a card, do not close it. You will want to leave it open to keep the benefit of the available credit on that card. Doing so will improve your credit utilization ratio, which is worth 30% of your overall FICO score. So this is not an insignificant number.
Normally you must wait at least a month or two (or more) before those payoffs are reflected on your report, thus improving your score. Instead, your mortgage lender can request (and pay for) a rapid rescore once you have made those payments and corrections, and you may see a score improvement within days of submitting the information.
How much does it cost?
In terms on dollars and cents, the fee for this service runs between $20 and $100.
Wait—didn’t I say that this service is only available to lenders? I did, which means the lender will have to pay the bill.
The Fair Credit Reporting Act prohibits lenders from charging a fee to dispute or correct credit reports. This is why not all lenders use the service and you may have to request it. Before you feel sorry for the lender paying the bill, this does not mean it won’t still make plenty of money on your loan somewhere else in the process (probably in your closing costs).
Keep in mind, though, that if by using the service you are able to bring your score down enough to put you in a lower interest rate tier that money will be well spent. Every percentage point makes a difference and can reach into the thousands of dollars over the life of a mortgage loan.
How can it help you get approved for a mortgage?
Barring a surprise, like you forgot that you just charged a down payment for a new car on your credit card, taking advantage of a rapid rescore will almost certainly raise your credit score. This can, in turn, make it easier for you to be approved.
Credit scores are not the only factor in mortgage approvals, of course. Current rates, property location and price, type of loan and the amount of your down payment are among the other factors, but your score certainly matters. You may get approved with a lower score, but a higher score can mean the difference in not only the interest rate you will pay but also the down payment required. These are all important factors in figuring out how much home you can reasonably afford.
What rapid rescore won’t do
Rapid rescore is not credit repair. I know because I have written a book on credit repair called “Credit Repair Kit For Dummies.”
Rapid rescore cannot reverse damage done by bankruptcy, late payments or charge-offs. These types of negative entries typically take seven years to drop off of your credit report (10 years in the case of a chapter 7 bankruptcy). However, as time goes by they become less damaging to your score.
This is why it is important to know what is in your credit report and work on correcting any errors at least six months before you apply for any type of new credit, especially a mortgage.
Rapid rescore alternatives
Check your credit report for errors
Pull your credit reports for free at AnnualCreditReport.com and go over them carefully. If you find mistakes, take the necessary steps to have them removed or corrected. Again, a good plan is to do this at least six months before you go mortgage shopping because even a rapid rescore may not give you enough time to get those reports in pristine shape. And pristine shape is where you want to be before you go down this road.
Even though you can’t get a rapid rescore on your own, there are steps you can take yourself to improve your score quickly. One of the quickest and most recent is the new program called Experian Boost.
As its name implies, it can “boost” your credit score by using information not usually reported to the credit bureaus, like utility and cell phone bills. This information comes from your checking account, which means you must allow access, but only positive information will be reported.
This is a free opt-in service and you can opt-out at any time. Boost will only affect your Experian report and score, but most mortgage lenders use all three credit bureaus – Experian, Equifax and TransUnion – so it could still be of benefit to you in your mortgage quest.
If you are a renter and your landlord does not report to the bureaus (many do not), you can check out Experian RentBureau (which again only impacts your Experian report) that will report those good rent payments, which could in turn improve your score.
In addition, FICO has begun piloting a program called UltraFICO. While it is not currently widely available, you might get lucky, so ask your lender if it offers it. An UltraFICO score takes your banking information into consideration when calculating your score. This, also, is only available for use with an Experian credit report.
The best way to improve your credit score is to do all the right things – most importantly, pay your bills as agreed and on time each and every month. Try to keep your credit card balances below 25 percent of your credit limit; if you can make it into the single digits that will be even better for your score. Only apply for new credit when you need it, and avoid closing credit card accounts unless they have annual fees you no longer want to pay.
While they may take more time than a rapid rescore, these are the tried and true steps for improving your credit score.