Is rapid rescore right for you? Here are some guidelines

When applying for a loan, typically a mortgage, you may be required to pay off past due debts or any outstanding loans to have the loan application approved.

Sometimes the lender may ask that you reduce high credit card balances, which will, in turn, raise your credit score to something more favorable. After all, credit utilization profoundly impacts your FICO score. A person’s balance-to-limit ratio should never be over 30 percent for each card. The lower the balance, the better the FICO score.

So, you follow the lender’s requests and pay off the balances, or lower them, so that you can get the balance-to-limit at the right percentage. However, it takes a full billing cycle for the creditors to process that payment and then submit it to the credit reporting agency. After that, scores are recalculated and the updates will then show on your report. The entire process, however, could take one to three months.

Option of Rapid Rescore

Rapid rescore is a process where your lender submits all proof of credit to the credit reporting agency of any recent changes, updates and payoffs. Then, the mortgage processor will work with the credit agency to update the credit report, reflect the new changes, and give a new FICO score. The lender may pay a fee to do this, and that cost could be passed on to you.

Once the report is updated and the new score is complete, you may have a higher credit score. However, rapid rescoring is only offered through a lender. A consumer could not request a rapid rescore on their own, and the lender has an inside track on how to reach consumer credit agencies and help their clients improve credit history and scores.

Should You Use Rapid Rescore?

Typically, lenders only do rapid rescores if a person’s credit score is just at the limit of the minimum score required to approve the loan or even offer a better rate. For example, your score is 575. While you are approved, it comes with a much higher interest rate. Therefore, the lender may do a rapid rescore method, after paying off a few items, to get you up to 620 or 660 -- which unlocks better interest.

Rapid rescore is helpful, but it may not work for all.

Perks of Rapid Rescore

When your credit score is within a few points of a better interest rate, rapid rescoring makes sense. After all, it helps you achieve a cheaper interest rate, which in turn saves on your monthly payments.

The lender will use a simulator to see how high your score will go, so if they find it will not raise it enough, they will not recommend the service.

Also, you can remove issues from your credit report and pay down debts, resulting in a better credit score.

The savings on interest is critical, and you may want to ask the lender how the rapid rescore will save you monthly and for the course of a loan.

For example, a 30-year loan for $250,000 with a rate of 4.75 percent is OK, but if you could get it down to 4.25 percent through rapid rescore, you would save $74 per month and $26,737 on the entire loan.

Pitfalls of Rapid Rescore

While beneficial, negative credit events that have not shown up on your report will delete all the work your lender did on the rapid rescore. Also, you must be able to pay down a large sum of debt,

which isn’t always possible.

Also, if the reporting creditor does not acknowledge the issue or payment, having a professional dispute the items could help.

You must weigh the pros and cons, consider your current budget, and then decide if rapid rescoring is the right move for you. After all, only you can decide

if it will indeed improve your purchasing power or put you in a financial bind.