Imagine that you are applying for a mortgage, and you discover that your credit score is just below the necessary range to qualify for a mortgage loan (or a better interest rate). The frustrating thing is that you have already taken steps to improve your credit score, but those steps have not yet been reflected in the credit bureau's information. That is the ideal scenario for what is known as a rapid rescore.
A rapid rescore is just as you would expect from the name: it's a process where, for a fee, the credit bureau expedites the process of updating your credit score.
It can take up to a full 30-day billing cycle from the time the corrective action is taken to the time it is reported to the credit bureaus and updated in your credit report. By reflecting the most recent positive information, your credit score can be adjusted in time to meet the time-sensitive aspects of a mortgage loan.
First, you must understand why your score is below your expectations. You can check your credit score for free and read credit reports from all three credit bureaus within minutes using Credit Manager by MoneyTips.
Check why your scores are low. Is there an erroneous entry on one of the reports, or is there a common thread in all three reports that you can correct, such as paying down a high credit card balance?
For the rapid rescore to be effective, you must correct the situation and show proof that it has been corrected. For example, you can prove that a high credit card balance has been paid down by showing that the bill has been posted with your credit card issuer — and that more debt has not replaced it. Keep in mind that any negative information coming in from another source, such as a different credit card with upcoming high charges or a missed payment, may negate your efforts. Make sure that you and your lender are aware of all recent items that can affect your credit score before proceeding.
It's important to note that lenders initiate the rapid rescore process, not the mortgage loan applicant. Beware of services that claim to offer direct rapid rescoring to consumers, and ask how they have leverage with the credit bureaus.
Mortgage lenders are not allowed to charge the borrower directly for any part of the cost of rapid rescoring, and as a result, this service is not available with all lenders. Mortgage lenders will offer rapid rescoring if your case is in their best interests. In essence, they see you as a low risk to pay your debts in full and on time given this added boost to your credit score.
Why is rapid rescoring in your best interests? Literally, because of interest — or in some cases, the ability to qualify for a loan at all.
A rapid rescore could result in a significant difference in the interest rate available to you. Adam Carroll, Chief Education Officer at National Financial Educators notes that while a 0.5% to 1% difference may not seem like much, when people ignore this difference, "…they're not looking long term in the actual cost of money.... One of the greatest expenses we have in our life is the interest expense on debt. Every single percentage point that you can decrease means massive amounts in your savings and investments later on."
For reference, a typical 30-year fixed-rate loan in the 4%-5% range for $250,000 that is dropped by 0.5% interest should save tens of thousands of dollars in interest over the life of the loan. Online calculators are available to help you calculate the exact difference in your case. MoneyTips is happy to help you get free mortgage quotes from top lenders.
Rapid rescoring is not for everyone — but if you and your lender agree that you are on the edge of qualification for a better mortgage deal and have the means and proof in hand to change the situation, a rapid rescore could save you thousands of dollars or help you get over the threshold to purchase your new home.