Rapid Re-Scoring Could Boost FICO Just Enough to Qualify For a Home Loan

Credit bureaus say it’s one of the most useful trends to hit the mortgage market in years. Yet most home loan applicants--and some mortgage brokers and realty agents--still don’t know about it.

It’s called “rapid re-scoring.” It’s potentially a mortgage saver--even a home saver--for anybody whose credit scores have been depressed by erroneous information on their credit files or by ill-advised use of their existing credit lines.

Say you’re applying for a loan on a new home you want to buy. To your surprise, the loan officer tells you that your “FICO” score is too low to qualify for the loan program you need to swing the purchase.

(“FICO” stands for Fair, Isaac & Co., Inc., the San Rafael, California Company that developed the nations most widely used credit-risk scoring program. FICO scores are generated by running your credit file information through the proprietary FICO scoring software at each of the three national credit repositories--Equifax, Experian and Trans-Union.) High FICO scores--700 and above--indicate that you are a solid credit risk and deserve the best interest rates and terms available. Scores less than the low 600s indicate that you have credit problems and might default on a new loan. Some consumers’ FICO scores come in artificially low because their credit files contain outdated and erroneous information. To correct such mistakes, loan applicants typically have to endure weeks or months of hassles contacting creditors, pleading with them to amend the information they erroneously sent to the repositories. That process, in turn, usually takes far longer than a loan officer can afford to wait to move ahead with your application. You have to come back and file a new loan application, pull new FICO scores and hope for the best. Sometimes the delay costs you a shot at the favorable interest rates that prevailed at the time of your first application--and just may knock you out of contention for the home and the loan package you wanted.

But now savvy loan applicants have a new option, working through their mortgage broker or loan officer: They can get their files corrected and re-scored within 48 to 72 hours. Though participating local credit reporting agencies cannot advertise their re-scoring services to the general public, they often let their mortgage lending clients know about them.

The re-scoring agencies negotiate special contracts with the three repositories, allowing them to obtain “universal data correction” forms from creditors--often within a day or two--and then sending them directly to repositories for immediate correction of the consumer’s file. The staff-intensive service costs money. Some lenders are charged $30 per tradeline, per bureau, per borrower. A lender or broker trying to save a marginal application from a borrower with a few credit errors on file might be charged $120 or $150 to get a rapid re-score within 72 hours.

A more extensive re-scoring could cost two or three times that amount. But it can be worth it for the borrower and the lender. Many rapid re-scores raise FICOs by 30, 50 or more points, depending upon the nature of the errors in the file. That jump in score, however, frequently pulls a borrower out of the “sub-prime” category, and can save thousands of dollars in interest in fees over the term of the mortgage.

One of the country’s top experts in the field, Ruth Koontz of Baltimore-based Lenders Credit Services, Inc., says re-scoring is most dramatic when a loan applicant’s credit files contain major factual errors (identity-theft situations, bogus delinquencies on credit cards or mortgage payments), and when the files show balances that don’t belong to the borrower. Re-scoring can also be a plus when consumers have made poor use of their credit choices, such as by maxing-out credit cards, home equity lines and personal credit lines. Re-scorers like Koontz know how and where to redistribute that debt to raise FICO scores immediately.

Don’t confuse rapid re-scoring with “credit repair.” Re-scoring is a legitimate service expressly sanctioned by the credit repositories through special contracts with select credit reporting agencies. “Credit repair”, by contrast, often involves illegal attempts to dupe the repositories and lenders alike.