Rapid Rescoring: Perks and Pitfalls
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When you're applying for a loan, every point in your credit score counts. If you have a negative error on your credit reports, you may not be eligible for as low an interest rate as you think — or worse, your application might get denied.
You would typically contact the credit bureaus directly to dispute an error, but you don't want to wait for them to investigate and correct it. If you need the loan now, you may want to consider rapid rescoring.
What is rapid rescoring?
As the name suggests, rapid rescoring is a service some lenders offer to help you get credit report errors fixed and your credit reports updated to improve your credit score. This process happens more quickly than if you were to work directly with the credit bureaus — sometimes within a few days. It can also be used in cases in which the borrower has paid off a major debt and the repayment hasn't yet been reflected on his or her credit reports.
“To qualify, you must have verifiable proof that the negative item in question is inaccurate.”
Lenders use rapid rescoring predominantly for mortgage loans because they are more time sensitive than other loans. Plus, even a small increase in a mortgage interest rate can cost the borrower thousands of dollars in interest over the life of the loan.
To qualify for rapid rescoring, you must have verifiable proof that the negative item in question is inaccurate. The cost of rapid rescoring depends on the lender. Some absorb the expense as part of their service offering, whereas others may pass it on to the borrower. Ask your loan officer beforehand about who will be paying for the service.
You can’t apply for rapid rescoring on your own; rather, the lender employs it on your behalf. Be wary of organizations that offer rapid rescoring services to you individually; it might be a scam.
How it can help you
If your credit score is within a few points of qualifying you for a better interest rate, having your credit reports updated via rapid rescoring can give you the boost you need. The process is reasonably predictable because lenders usually run a simulator beforehand to see how the update would affect your credit score.
Say your current credit score will get you a 4.75% rate on a 30-year mortgage for $250,000. After rapid rescoring, your new credit score qualifies you for a 4.25% rate. The update results in savings of $74 a month or $26,737 in interest over the life of the loan.
When it may not work
Although lenders can simulate how removing an incorrect item or paying down a large debt balance can change your credit score, it's not foolproof. For example, if you have other recent negative credit events that haven't yet popped up on your reports, those can negate or diminish the positive effect of rapid rescoring.
Rapid rescoring also won't work if the reporting creditor doesn't acknowledge the item in question as a mistake. If you dispute a late payment, for instance, but the creditor has no record of timely payment and you can't prove it, the lender likely won't even attempt a rapid rescore.
It isn't magic
The purpose of rapid rescoring is to give a lender an accurate picture of a borrower's creditworthiness. Therefore, it won't remove things from your credit reports that belong there. For example, if you have any past delinquencies, collection accounts or a bankruptcy that aren't in error, rapid rescoring won't make any difference.
“If your credit report has legitimate delinquencies, bankruptcies, or collection accounts, focus on fixing your credit score.”
If this is the case for you, consider using the following tips to revive your credit score quickly:
Pay down high balances on credit cards: Your credit utilization ratio heavily influences your credit score. It's generally recommended to keep it below 30% at all times, but the closer to 0% the better. If you have enough cash to pay off your balances completely, this can have a positive effect on your score as soon as the card issuers report the new balance to the credit bureaus.
Pay off delinquent accounts: When it comes to delinquencies, lenders care more about the fact that you're late on the payment than how much you owe. The longer you're delinquent, the more damage it does to your credit score. So although paying off a delinquent bill may not boost your score much in the short run, it can prevent it from damaging your score more than it already does.
Refrain from closing credit card accounts: Although it may seem like a good idea to get rid of some credit cards to boost your credit, closing a credit card account can actually hurt your credit score. Not only will it increase your credit utilization ratio because your total available credit will drop, but it can also weaken your length of credit history.
If you know you'll need a loan in the near future, plan to check your credit report a few months before applying. You can order a free credit report from each of the three major credit bureaus once a year. Although rapid rescoring can help you fix inaccuracies quickly, thinking ahead can save you some stress and help you see areas where you can improve your score before it's time to bare it to lenders.
This article was updated Aug. 25, 2016. It originally published June 22, 2015.
Ben Luthi is a former credit card specialist for NerdWallet.