Credit Sesame Daily

Browse Categories

A Quick and Legal Credit Fix: What Is Rapid Rescoring?

Related Posts

Links We Love: Everything You Need to Know About Giving Gift Cards
Understanding Your Debt Collection Rights: What Debt Collectors Can and Cannot Do
Your 2014 End of Year Credit Checklist

(source)

For the tens of millions of consumers who’ve sat on the “borrower” side of the mortgage transaction, many of the terms we hear during the process are foreign to us. What’s a Settlement Statement? What’s a HUD-1? What’s a Promissory Note? Why do we have to sign 2 inches of paperwork?

While my goal certainly isn’t to turn you into a mortgage expert, it is my goal to familiarize you with some of the more complicated processes and tools used by mortgage professionals when processing our applications. This week “Rapid Rescoring” is on deck. This process allows mortgage lenders to participate in “credit repair” on behalf of their applicants who’ve fallen short of having a good enough credit report or a perfect credit score to qualify.

When you apply for a mortgage, the lender/broker pulls all three of your credit reports and the three credit reports of your co-applicant.  This means six total credit reports and six total credit scores.  And while all of your scores are certainly important, none is as important as the middle of your scores and the middle of your co-applicant’s scores.

If your middle scores aren’t good enough, your lender or mortgage broker is going to have a hard time getting you qualified for a loan or getting you qualified at the best terms. And since mortgage lenders are largely compensated on a commission basis, it’s in their best interest to get you qualified. Plus, they are probably very familiar with what affects credit score. So, at this point the goal becomes to get your credit reports modified, corrected, or updated so that your credit scores will improve enough to get you qualified.

The process many mortgage lenders use is called rapid rescoring or rapid updating. It’s the process whereby they are able to get information on your credit reports changed much faster than if you were to attempt to get it changed on your own.  And, since credit-scoring systems are real-time, meaning your scores will change as your credit reports change, any positive modifications can mean better scores immediately.

Normally, credit reports take up to 45 days to “correct” if the consumer were to go through the standard protocol of filing disputes with the credit reporting agencies. In the case of a mortgage loan application, 45 days just isn’t good enough because you could lose your interest rate lock. Enter rapid rescoring, the fee-based service offered by the companies who sell credit reports to your mortgage lenders.

For between $25-$50 per account per credit report (a cost absorbed by your mortgage lender), your mortgage lender can actually have information changed/updated on your credit reports within a few days rather than few weeks. They accomplish this by having atypical access to a specialized team of people at the credit reporting agencies that work directly with members of the mortgage industry to facilitate these expedited credit report corrections. For example, if you have a credit card incorrectly showing a $1,000 balance (that’s actually paid off), your lender can have the credit report updated to show a $0 balance faster than you can say “wow, now that was fast.”

Once the process of updating your credit files is completed, the mortgage lender can simply order an updated set of credit reports. When the credit reports are re-pulled from the credit reporting agencies, the applicant’s FICO credit scores will take into account the fact that the credit card now has a $0 balance. And, in many cases this will result in a better set of scores and possibly an approval rather than a denial.

The impression is that the applicant’s scores were rapidly changed, which isn’t at all what happened.  All that happened was the credit reports, which were not up to date in the first place, were corrected — thus yielding a more accurate set of credit scores. So, in a sense, rapid “re-scoring” is really little more than “rapid-correcting” of your credit files, and just one more tool when you are trying to figure out how to fix your credit.

John Ulzheimer is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO and Equifax, John is the only recognized credit expert who actually comes from the credit industry. He is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling. Follow him on Twitter here.

« Previous Post This Week in Money Management: Life After Graduation
Next Post » HGTV to the Rescue: What You Can Learn From Home Buying Shows

More Like This

,

Discuss