How Can Rapid Rescore Help Me Get a Mortgage?

If your credit scores are bad, most mortgage lenders will offer you a higher interest rate than borrowers with a good credit history. Because even a slight decrease in your interest rate can save you money each month and thousands of dollars over the life of the loan, you should take steps to raise your scores.

You can increase your scores (and get a better rate) by fixing errors in your credit reports or taking other steps to repair your credit, like paying all your bills on time and reducing your debt-to-credit ratios. But it usually takes a while before these actions will show up in your credit reports and result in improved credit scores.

A "rapid rescore" makes sure all of the latest steps you've taken to improve your credit are reflected in your credit reports right away. Some mortgage lenders offer rapid recording to homebuyers whose credit scores need a slight increase to, say, meet a minimum credit score to qualify for a loan program or get a particular interest rate.

However, be sure to consider the downsides before requesting a rapid rescore. If you've missed bill payments recently, your credit might look worse after a rescore. And be aware that a rapid rescore isn't a silver bullet to fix your credit; it won't help you as much as other long-term steps to improve your credit, like always paying your bills on time and keeping your credit card balances consistently low.

How Good Is Your Credit History?

Lenders typically request consumers' credit histories from the credit reporting bureaus (Equifax, Experian, and TransUnion) when reviewing loan applications and making lending decisions. A FICO score is the most common score used in the mortgage-lending business. FICO has many different scoring models and provides various kinds of scores.

Many mortgage lenders, including those that provide loans in conformance with Fannie Mae and Freddie Mac requirements, use the "Classic FICO" credit score, which has a range of 300 and 850. (However, at some point, Fannie Mae and Freddie Mac will also require FICO 10T and VantageScore 4.0 credit scores with each loan sold to them.)

The higher your credit score, the easier it will be to get a loan. Fannie Mae generally requires borrowers to have a credit score of 620 or 640, depending on the situation. Freddie Mac requires a score of 620 or 660, depending on the circumstances, for a single-family primary residence. Of course, lenders may also have requirements that are stricter than these guidelines.

If you routinely pay your bills late, however, expect a lower score. A lender might then either reject your loan application or insist on a very large down payment or high interest rate (to reduce its risk).

How to Raise Your Credit Scores

If your credit history is in rough shape, you can take steps to improve it relatively quickly by fixing errors in your credit reports and reducing your debt-to-credit ratio.

Fixing Errors in Your Credit Reports

Taking steps to correct your credit reports can raise your credit scores, which are based on the information in these reports. A "credit report" is a detailed record of how you've managed your credit over time. Credit reporting agencies, like Equifax, Experian, and TransUnion, collect data from creditors, lenders, and public records to produce the reports. The agencies then sell the reports to current and prospective creditors and anyone else with a legitimate business need for the information.

So, your credit report is either a valuable asset or a liability, depending on its contents. The Fair Credit Reporting Act (FCRA) (15 U.S.C. § 1681 and following) requires credit reporting agencies to adopt reasonable procedures for gathering, maintaining, and distributing information. It also sets accuracy standards for creditors that provide data to agencies. Even with these safeguards, credit reports often have errors and inaccuracies.

Because your credit reports can have a considerable influence on credit decisions others make about you, it's essential to make sure that the information is accurate. Generally, you'll want to dispute debts that are reported inaccurately, debts that aren't yours (perhaps due to identity theft), and debts that are too old to be reported. When errors are removed, you'll end up with a higher credit score.

You might also consider adding positive information that demonstrates your financial stability, like your job and address, to your credit reports.

Reducing Your Debt-to-Credit Ratio

Your debt-to-credit ratio, also called your "credit utilization rate," is generally the amount of revolving credit you're using compared to the total amount of credit available to you (your credit limits). By paying down some of your debts, like making large lump-sum payments to lower your credit card balances, you can improve your scores.

Example. Say you have one credit card with a $7,000 credit limit and a $3,500 balance. Another card has a $12,000 limit, and your balance is $1,200. The first card has a 50% ratio, which is high (and bad for your credit scores). The second has a 10% ratio, which is good. You can raise your credit scores by paying down the card with the higher ratio.

Limitations on Using These Methods

When you file a dispute with a credit reporting bureau about an error on your credit report, it will take some time for the bureau to review the matter and update your information. And it will most likely take a while for a reduced credit card balance to show up in your reports. In the meantime, you might miss out on getting a mortgage on the terms that you want.

What Is Rapid Rescoring?

"Rapid rescoring" is a service that some mortgage lenders provide for updating your credit reports. This process won't raise your credit score alone—it's not a trick to improve your credit. But it will update your current credit profile quickly.

So, if you've recently disputed an error on your credit report or paid down a credit card balance, a rapid rescore will factor these credit changes into your scores promptly. Your credit information is updated usually within days instead of with the next billing cycle or batch report (which usually happens after 30 to 60 days).

You won't see a massive jump in your credit scores with rapid rescoring, but if your credit scores are just short of qualifying for a mortgage or getting a lower interest rate, rapid rescoring can give you the points you need to get to the required level.

How Rapid Rescoring Works

Rapid rescoring basically speeds up how quickly the latest changes to your credit status get incorporated into your credit scores. It normally takes around three to five business days to complete the rapid rescoring process. But you can't do rapid rescoring on your own; rapid rescoring is a service that only creditors provide. Credit card companies and other types of lenders sometimes offer rapid rescoring as an option. But mortgage lenders use rapid rescoring more frequently because these loans are time-sensitive.

The mortgage lender will request a rapid rescore on your behalf after sending proof supporting the reason for a rescore to the credit reporting bureau. The bureau then updates your credit reports in an accelerated time frame. If another kind of organization, like a debt relief company, offers rapid rescoring services to you, it might be a scam.

Your lender can tell you if a quick update to your credit scores will be helpful and might even be able to tell you which liabilities you need to pay off or how much you should pay off to raise your scores.

Example of How Rapid Rescoring Works

Say you can get a lower interest rate on a mortgage loan if you raise your credit score by 15 points. Your lender runs a simulator that says you can gain these points by paying down your credit card balances so that you're using less than 30% of your credit limit on each card. (Generally, you should avoid charging everything to one card if it means you'll use more than 30% of the credit limit on that card.) You've got the cash available, so you pay down the balances on your cards.

Then, your lender uses rapid rescoring to send updated information to the relevant credit bureaus and have it added to your credit reports within a few days. When the lender requests new credit scores from the bureaus, you're likely to have higher scores and get approved at the lower interest rate.

How Much Does Rapid Rescoring Cost?

The actual cost varies depending on how many credit reports and accounts need to be updated. But your mortgage lender will usually pay for the rapid rescoring process. In fact, the FCRA prohibits lenders from charging you to correct or dispute credit report information. (15 U.S.C. § 1681i(a)(1)(A)).

But there's no such thing as a free lunch, and you'll end up paying for your lender's help, probably in your closing costs. However, if you can raise your score enough to get a lower interest rate, that money will be well spent.

Be Careful When Requesting a Rapid Rescore

While the goal of the rapid rescoring process is to improve your credit, your scores might not actually go up. If you've recently skipped a credit card payment, become delinquent on other bills, had a raise in hard inquiries, closed a line of credit, or had any other kind of negative entry, asking for a rapid rescore will likely lower your credit scores.

Rapid rescoring is most useful when you can make some quick fixes to your credit. But it won't get rid of accurate negative information, like past delinquencies, accounts in collection, or a bankruptcy.

Other Options for Raising Your Credit Scores

If you aren't looking to get a mortgage soon, you can take other steps to improve your credit. These options usually take more time than fixing mistakes in your credit reports or paying down debt balances. For example:

• pay your bills on time, every time
• pay your credit card balances in full every month, and
• keep your credit card balances low.

Also, you could consider increasing the credit limits on your existing credit cards. As discussed earlier, if the amount you owe is close to your credit limit, that's likely to harm your credit. So, you might consider asking for an increase in the limits on your existing credit cards.

But you need to be careful with this tactic: If you've missed payments or if your score is trending downward, the card issuer might think you're having financial problems, and you're desperate to get more credit. The issuer might then decrease your credit limits. So, make sure your financial situation appears stable before you ask for an increase. Also, don't try this tactic if you have problems with controlling your spending.

Also, You Can Apply for Mortgages From Different Lenders

Each lender has its own guidelines and requirements when it comes to determining eligibility and interest rates. While one lender might not be willing to offer you the loan or interest rate you want, another lender might be willing to lend to you on your preferred terms.

Compare the interest rates and other terms from several different lenders before you make a decision about which mortgage to get. Mortgage calculators at QuickenLoans, Zillow, Nolo, and other websites can help you in this process. These calculators usually allow you to enter the loan terms (rates, points, and fees) so you can compare various loans.

When shopping around with different lenders, submit your applications within a short period to avoid harming your credit. Some credit-scoring models consider several mortgage inquiries within 14 days as just one inquiry (they assume you're shopping around for the best deal). Others treat several inquiries as a single one if you make them within 45 days. Because you probably won't know what scoring model a particular lender will use now or when you apply for credit in the future, keep your applications for different mortgages within a 14-day window to be safe.

Consider Buying Down Your Interest Rate

If your credit scores aren't good, it might make financial sense to pay mortgage discount points to get a lower interest rate.

Getting Help

For more on finding and choosing the best mortgage, get Nolo's Essential Guide to Buying Your First Home, by Ann O'Connell, Ilona Bray, and Marcia Stewart. You can also get more information from a real estate attorney.