Your credit score is a crucial factor in determining your interest rate on a mortgage, and even a small rate decrease can save you thousands of dollars over the life of the loan. Typically, improving your credit score takes months. But with rapid rescoring, you can achieve your goal in just a few days.
Rapid rescoring is a service that mortgage lenders provide to homebuyers whose credit scores might need just a little bump. It’s not a cure-all, however. There are some limitations to consider before you request it, and it likely won’t have the same effect as the months of work it usually takes to improve your credit.
[Read: Best Mortgage Lenders.]
What Is Rapid Rescoring?
When you dispute an error on your credit report, it can take time for the credit bureaus to update your information. And if you pay down a credit card or loan balance, you typically have to wait until the creditor reports that information to the credit bureaus.
Rapid rescoring essentially accelerates that updating process and can incorporate the latest changes to your credit status into your credit score. It’s not something you can do on your own.
In the right situation, it can help you get a lower interest rate or even make it possible to get approved in the first place.
“The most common instance where rapid rescoring can help is when you need a minimum credit score to qualify for a loan program,” says Jared Maxwell, vice president and direct sales division leader at Embrace Home Loans.
In some cases, mortgage lenders can even tell you which areas of your credit history to address.
“As mortgage lenders, we have the ability to see how much their credit score can go up and what needs to be done to make the score go up,” says Soni Seth, a loan officer at Freedom Mortgage. “We run a report for them to show them what liabilities can be paid off and how much each liability should be paid off to get their credit score up.”
How Much Does Rapid Rescoring Cost?
The cost of a rapid rescore can vary based on how many credit reports you want to be updated — you have three among Experian, Equifax and TransUnion — and how many credit accounts need to be updated.
“Each bureau can cost up to $40 each,” says Seth. ” We usually update all three bureaus, so that is $120 per line item. If you have to do a rescore on four different credit cards, for example, it can cost almost $480.”
Don’t worry about the price tag, though. Rapid rescoring is a service that mortgage lenders provide free of charge. In fact, the Fair Credit Reporting Act prohibits lenders from charging clients to correct or dispute credit report information.
[Compare: Mortgage and Refinance Rates in Your Area.]
How Long Does it Take to Get a Rapid Rescore?
It generally takes three to five business days to complete the process. Before you start, though, make sure you’ve addressed the issues that are hurting your credit score.
For example, if you need to pay down a credit card balance, make sure the payment goes through beforehand. The same goes for credit report disputes and other areas where an improvement can make a difference for your mortgage.
If you’re not in a rush to buy a home, however, consider taking steps long before you apply for a mortgage to work on improving your credit score. While a rapid rescore can make a difference, it doesn’t compare to the work you can do over several months to pay down credit cards, dispute errors and get everything else in order.
Does Rapid Rescoring Really Work?
Like any other action you can take to improve your credit, the answer is, it depends. While the intent of the process is to improve your credit score, there’s no guarantee it will go up.
For example, a mortgage lender may run a rapid rescore and find a new delinquent payment or another issue that results in a lower credit score. As a result, it’s crucial that you take your entire credit situation into account before requesting the rescore to make sure you don’t get any negative surprises.
According to Maxwell, it’s also important to consider other effects the process can have on your ability to buy a home. “You could use a large amount of your savings to pay down debt and not see the desired change in your credit score,” he says.
Even if the process does work, you’ll have less cash on hand to make a down payment and pay for repairs, maintenance and emergencies once the home is yours.
Rapid Rescoring Limitations
Before you think about using a rapid rescore to help you get approved for a mortgage or to get a lower interest rate, it’s important to know what the process can’t do.
Repair your credit. Rapid rescoring essentially gives you a fast track to updates on your credit reports. If you’re looking for help to fix inaccurate credit report information, you can file a dispute with the credit bureaus directly, or you can enlist the help of a credit repair company for a fee.
Remove legitimate negative information. Just like the credit repair process, rapid rescoring won’t speed up the process of negative information falling off your credit report. If you’ve missed a payment or defaulted on a loan, that negative mark will remain on your credit report for seven years. And if you’ve filed bankruptcy, it can take up to 10 years for it to be removed, depending on the type of bankruptcy you chose.
In other words, while rapid rescoring can help in situations where you can make quick fixes to your credit history, it won’t make up for accurate negative information.
Make the same progress as months of work. The easiest way to get a good mortgage interest rate is to begin the loan process with a good credit score. If your score is just shy of qualifying for a mortgage or getting a lower interest rate, rapid rescoring can give you the boost you need.
But if you take the time before you apply to improve your credit, you’ll likely be able to make more comprehensive improvements, which can potentially save you even more money.
Alternatives to Rapid Rescoring
In addition to working on your credit long before you apply, here are some other ways you can improve your odds of getting approved for a mortgage or qualifying for a lower interest rate.
Shop around. Each lender has its own criteria for determining eligibility and interest rates. While one might not be willing to offer you the loan program or rate you want, another lender may be willing.
Take some time to compare mortgage rates and other terms from several lenders before you make your decision. Using a mortgage broker can help with this process, because brokers work with several lenders.
Try Experian Boost. Some experts may recommend using a product like Experian Boost to improve your credit score before a mortgage application. The service allows you to get credit for making payments on noncredit accounts, such as your utility and phone bills and even streaming service subscriptions.
But the improvements Experian Boost can provide are based on the FICO 8 scoring model, and most mortgage lenders use older FICO models, so you may not see any improvement at all.
[Read: Best Mortgage Refinance Lenders.]
Refinance later. If you don’t get the interest rate you’re looking for, even with a rapid rescore, but still want to move forward, you can refinance your mortgage later, once your credit has improved enough to get more favorable terms.
Just remember that a mortgage refinance includes closing costs, and you’ll want to compare the savings you’ll get from the lower rate to the additional cost to make sure it’s the right fit.
More from U.S. News
How to Build Credit With a Credit Card
How to Get a High Credit Score
How to Rebuild Your Credit After a Missed Credit Card Payment
What Is a Rapid Rescore and How Does It Work? originally appeared on usnews.com
