Say you applied for a mortgage but your credit score was just a few points shy of landing best possible interest rate due to an error on your credit report or a high balance. If you tried to fix the error or paid down the balance, it could take several weeks for your credit report to be updated through the normal channels.
Thanks to a process called rapid re-scoring, you could potentially get approved for a mortgage at the lower interest rate within a few days. “If I paid off a credit card today, it might show up on my credit report 6-8 weeks from today,” says Joe Parsons, a senior loan officer with PFS Funding, a mortgage banker in Dublin, Ca. “Rapid re-score is simply a matter of providing documentation to the credit bureaus to get them to update information and shorten the normal reporting timetable.” An updated score is typically generated within about 72 hours, according to Parsons.
Loan originators look at your credit scores from Equifax, Experian, and TransUnion, then base your eligibility and interest rate on your middle score, ignoring the high and low score. That means you’d only need to have the median score recalculated instead of recalculating all three.
Before going through the rapid re-score process, a loan officer like Parsons could run a FICO simulator to estimate how much your credit score could be improved by paying down a balance or making other changes. The impact of a rapid re-score varies depending on what derogatory items were on your credit report, but Parsons says it could save a consumer thousands of dollars in interest over the course of a loan.
However, it’s important to note that a rapid re-score is different from credit repair. Credit repair is a separate process that often involves a third-party company disputing derogatory items on your credit report that may or may not be accurate. With a rapid re-score, you’d need documentation that you’d actually paid off a high balance or collections or that an item on your credit report was reported inaccurately.
Unless your median credit score already tops 740 (the cut-off credit score for the best interest rates), it’s probably in your best interest to consider a rapid re-score. “That low score is increasing the cost of the mortgage dramatically,” says Parsons.