In this blog, we will discuss and cover rapid rescore during mortgage process. We will cover and discuss how the rapid rescore process works. The consumer credit profile is reported to three major credit reporting agencies. Each credit bureau records the data and payment history of consumers in its database. Each credit bureau has its own algorithms for calculating consumer credit scores.
What Are The Lows and Highs of Consumer Credit Scores
Credit scores range from a low of 300 to 850 FICO. Credit bureaus take time to report updated accurate consumer credit in their system. However, if a borrower is in a rush to have the most recently updated credit profile reporting on their credit report, loan officers can do a rapid rescore. A rapid rescore is when a loan officer requests a borrower’s credit profile update through a credit service provider like Credit Plus in a rush. Most rapid rescores are done in three to five business days. Consumers need proof and documentation of credit tradelines they need rapid rescored.
How Credit Bureaus Work
There are three major consumer credit bureaus. They are Experian, Equifax, and Transunion. Whenever a creditor reports credit history, they report it to the three major credit reporting agencies once per month. However, it might take between 30 and 45 days for an updated credit item to be posted on all three credit reporting agencies. For borrowers who are applying for a mortgage and need something reported in a matter of days and cannot wait for 45 days for an updated credit report, their mortgage loan originator can do a rapid rescore by a rapid rescore vendor.
Rapid Rescore During Mortgage Process Prior To Pre-Approval
Let’s take a case study where we can explain what rapid rescore during the mortgage process is and the importance of rapid rescore. Say that if a borrower has a 615 FICO credit score and a debt-to-income ratio of 58% and needs to qualify for a mortgage loan. However, lenders cannot get a mortgage loan approval on conventional loans unless the borrower has a minimum of a 620 FICO credit score and the debt to income ratio needs to be lower than 50%.
Making Positive Changes To Credit Report To Qualify For A Mortgage
The borrower can pay down credit card balances and other debts so they can lower their debt-to-income ratio and meet the maximum DTI threshold for a mortgage loan program. However, it takes time for the credit bureaus to reflect the paid credit card balances and report them to the credit bureaus. It can take over 30 plus days for the credit bureaus to have consumer credit tradelines updated. In cases of a rush, the loan officer can do a rapid rescore in three to five business days. What this means is a loan officer can update consumer credit tradelines to report on all three credit bureaus in days versus over a month it takes.
How Does Rapid Rescore During Mortgage Process Work
The mortgage loan originator advises borrowers to do the following:
- that by paying down their three maxed-out credit cards to a 10% credit limit balance
- scores will surpass the 620 FICO score mark
- by eliminating the minimum monthly payments on your credit cards, their debt to income ratio will be at a 48% debt to income ratio
Borrowers decide to take his advice and pay off the three credit card balances right away so they can get mortgage approval and purchase the home of their dream as soon as possible:
- Unfortunately, even by paying off the three credit card balances, borrowers need to wait until the next credit reporting period by the three major credit reporting agencies before they can even start the mortgage application process which can take longer than 45 days
- To avoid this lengthy delay, rapid rescore can be done
A Rapid Rescore will update the consumer credit report in 3 to 5 business days.
Rapid Rescore During Mortgage Process To Expedite Credit Updates
From the above example, the solution to this problem is done by doing a rapid rescore of credit. Borrowers need to get the statements from the three credit card companies that they have paid the credit card balances in full. The mortgage loan originator submits the proof to the rapid rescore vendor who in turn reports it to the three major credit reporting agencies. In a matter of 3 to 5 business days, the credit report is updated showing the paid-off balances of credit cards. Rapid rescores also reflect higher credit scores. Borrowers can now proceed to process their mortgage loan applications so borrowers can close on their dream homes.
How Lenders Use Rapid Rescore
Rapid rescoring is a service used by mortgage lenders to update borrowers’ recent credit updates in a matter of days instead of the normal cycle it takes. If a consumer makes changes to their credit profile such as paying down the balance on credit cards, it may take up to 45 to 60 days to get it updated on the three credit reporting agencies. However, if a loan officer uses the services of rapid rescore, it may only take three to five days or sometimes even sooner. Therefore, instead of waiting 45 to 60 days to get borrowers’ credit scores updated through the normal billing cycle method, all information on consumer credit reports can be updated in a matter of days.
Reason For Rapid Rescore During Mortgage Process
There are multiple reasons to rapid rescore borrowers during the mortgage process. One of the main reasons to rapid rescore borrowers is because the borrower may not meet the minimum credit score requirements Let’s take a case scenario situation. Borrowers need at least a 580 credit score to qualify for a 3.5% down payment FHA loan. Borrowers with under 580 FICO and down to a 500 credit score can qualify for an FHA loan. However, per HUD Agency Guidelines, borrowers with under 580 credit scores and down to 500 FICO need to put a 10% versus a 3.5% down payment. So, let’s assume the borrower has a 560 credit score and only has a 3.5% down payment on a home purchase.
Using The FICO Simulator For Potential Score Improvements
The loan officer does a FICO Simulator on the borrower and sees that paying down three credit cards to a 10% utilizing ratio will increase the borrower’s credit scores by 20 points. A 20-point increase is what the borrower needs. The loan officer instructs the borrower to pay down the three credit cards and get documentation and proof from the credit card company.
Who Does The Rapid Score During Mortgage Process
The loan officer and the mortgage processor can rapid rescore this transaction where the paydown of the credit card balance will be updated at all three credit bureaus. Once the credit bureaus update the borrower’s credit card balances, the loan officer can re-pull credit and the new credit score should be at 580 FICO. Now with the 580 credit score, the borrower can qualify for a 3.5% down payment home purchase FHA loan. This is one of the many reasons why rapid rescoring services are used by loan officers.
Reasons Loan Officers Use Rapid Rescore During Mortgage Process
This is why it is important for borrowers to prepare months ahead prior to qualifying and applying for a mortgage. Credit scores can fluctuate every month. Having low credit card balances is the best method of increasing credit scores. For maximum optimization, consumers should have a 10% or lower credit utilization ratio on all of their credit cards.
How Long Does It Take To Update Credit Profile on Credit Scores
Even if you were to pay down your credit card balance, it will take 45 days or more for the updated balance to be reflected on your credit reports. This is why it is important to prepare for a mortgage months before applying and starting the mortgage process. Rapid rescores are used for accelerating the updated information quicker on consumer credit reports. It is not any form of credit repair. All rapid rescores need supporting documentation and proof.
Rapid Rescore Updates On Credit Reports In Three To Five Business Days
Reasons, why rapid rescore, is used during the mortgage process is to report updated recent information on all three credit bureaus. By improving the information and data on your credit reports, consumer credit scores will increase. Higher credit scores mean lower mortgage rates. Many people are just a few points shy to qualify for a mortgage program. For example, if a person needs to go with a conventional loan, the minimum credit score requirement is 620 FICO.
Low Credit Card Balances Will Increase Credit Scores
Paying down credit card balances can boost credit scores. Therefore, pay down your credit cards and the loan officer can do a rapid rescore. Within three to five days, the loan officer will re-pull credit and the borrower should have a 620 credit score. Other reasons loan officers do rapid rescores is to improve credit scores to get them the best rates on a refinance. Again, the loan officer can rescore borrowers after they have paid down their credit cards. Another reason is when the borrower’s debt-to-income ratio is too high. Pay off certain debts like credit cards, installment loans, and/or car loans and the loan officer can do a rapid rescore. Rapid rescores are done to expedite removing and/or fixing errors on consumer credit reports.
Who Pays For Rapid Rescore During Mortgage Process
Only mortgage lenders are allowed to do rapid rescore. Rapid rescores can be quite an expense. It costs $35 per credit tradeline per credit bureau. So, let’s say for a case scenario example a borrower paid off the balance of an American Express credit card so now the balance is zero. To get this rapid rescore done, it is going to cost $105. $35 dollars per credit bureau. There are three credit bureaus. Therefore, it is $35 times three which yields $105. You can do the math where rapid rescores can easily add up. The lender pays for the rapid rescore.
Rapid Rescore During Mortgage Process: Importance of Maximizing Credit Scores Well Ahead of the Start of the Mortgage Process
Depending on the mortgage banker and/or mortgage broker, the rapid rescore can be charged as a closing cost, or in many cases, the loan officer will pick up the tab of the rapid rescore. Remember, there is no free lunch in the mortgage industry. In many instances where mortgage bankers say they will pick up the rapid rescoring costs does not mean it was free.
Rapid Rescore During Mortgage Process: Who Pays For Rapid Rescore Fees
Mortgage bankers will account for the overhead costs such as rapid rescore fees on the mortgage rates they charge. The higher the costs that mortgage bankers cover on the back end, the higher the rates borrowers pay. This is just the way the mortgage industry works. If you have any questions concerning the contents of this article and/or other mortgage-related topics, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at email@example.com. The team at Gustan Cho Associates is available 7 days a week, on evenings, weekends, and holidays.
Mortgage Lender with No Lender Overlays
Homebuyers who need to qualify for FHA, VA, USDA, and Conventional Loans with no lender overlays, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at firstname.lastname@example.org. The team at Gustan Cho Associates is available 7 days a week, on evenings, weekends, and holidays.