A credit score is one of the most accurate ways for lenders of all types to gauge your reliability as a borrower, which is why a credit rescore can be so important. While a credit score may not be an accurate measurement of financial strength (it’s possible to have lots of money but a terrible credit score), it can be effective for lenders to estimate your statistical probability of repaying a loan.
In some cases, past mistakes and financial unreadiness by a borrower have lead to missed payments or the complete inability to repay a loan. This inevitably leads to a drop in a person’s credit score.
In other cases, mistakes by the credit agencies, such as inaccurate information, mistaken identities, and outdated information have lead to unwarranted declines in someone’s credit.
If you are seeking a mortgage loan, poor credit, regardless of the cause, can create significant burdens for your application. It can mean lower borrowing potential, higher interest rates, and even the outright rejection of your application.
Fortunately, there are ways to repair this problem; some faster than others!
Credit rescore is a rapid-response strategy that, in certain cases, can result in a fast improvement for your overall score. Nothing is guaranteed, but within weeks, you could go from a loan rejection to complete approval with a credit rescore.
Credit Rescore: Your (Possible) Solution to a Loan Rejection
What is a Credit Rescore?
Credit rescore, also known as “rapid rescore,” is when new information, which shows a positive increase in your creditworthiness, is submitted to the credit agencies.
Your credit score is a compilation of information compiled by the three major credit agencies. These agencies create your score based on payment history, credit diversity, total credit used, long you have used credit, and other important information. For the most part, this information is accurate, but there can be inaccurate or outdated information.
According to the Consumer Finance Protection Bureau, there is a variety of inaccurate information that is found on people’s credit scores. On your report, there may be accounts belonging to another person of the same or a similar name, or you could have incorrect accounts resulting from identity theft.
Even if all the accounts belong to you, there could be accounts that should be closed yet remain open, or even accounts that are incorrectly reported as late. The date of last payment or date when an account was opened could be inaccurate, or the same debt could have been listed twice. From incorrect balances to inaccurate credit limits, there are many things that can go wrong with your score.
In some cases, accounts are so old they should not be listed on your report, yet they remain, reducing your score when they should be removed.
But you don’t have to accept these mistakes as just a part of the credit process. Instead, you can use a credit rescore.
Working either by yourself or with the support of a qualified professional, you can review the reports and submit accurate information to quickly improve your score. In fact, it’s possible to have an improvement in your score in as little as a single week.
The results will certainly vary depending on each individual, but it’s not unheard of to have a score improve by as many as 100 points or more after a credit rescore. For most people, the results will probably be more moderate, with improvement from 10 to 50 points. This might not sound as exciting, but a few points in a positive direction could be the difference needed to reduce your interest rate, lower the required downpayment, or even help you go from rejection to approval.
What are the Benefits of a Credit Rescore?
A credit rescore can bring a variety of benefits, including…
Lower Interest Rates
By increasing your credit score, you have the chance to enjoy a much lower interest rate on your mortgage loan. Suppose you are able to significantly increase your score, resulting in a reduction of interest rate by 0.25%. A quarter of a percentage point may not seem massive, but look at the results for your monthly payments.
Suppose you have a 30-year loan of exactly $400,000 with an interest rate of 4.25%; this would mean a monthly principle and interest payment of $1,968. (For simplicity, we are leaving other factors like mortgage insurance off.) By reducing the interest rate to 4%, you have a payment of $1910. Sure that’s only $58 a month, but over the life of a 30-year loan, that means you save $20,880.
Higher Borrowing Limits
Having a better credit score also means you have the chance to enjoy a higher borrowing limit. By increasing your score, you may be able to afford a larger house, or one that has luxurious amenities. A higher limit could also mean a home in a more desirable neighborhood, or one closer to parks, entertainment, or other popular features.
Lower Downpayment Requirements
If your credit score is high, it can mean significant demands for a downpayment. The downpayment requirements for conventional loans will vary widely, but in general you will be expected to have a smaller downpayment if your score is strong.
With FHA loans, the requirements are clear. If you have a score between 500 and 579, you will need a downpayment of 10% to qualify for financing. But if you can improve your score to 580 or higher, you only need a 3.5% downpayment. For a $400,000 loan, that means only needing $14,000 instead of $40,000.
Rejection to Approval
There is, of course, the real possibility that improving your score will mean complete approval of the loan. Take the FHA example; if your score is below 500, your application for an FHA loan will likely be rejected. However, if you use a credit rescore and get the loan to above 500, you will be eligible. (Granted, you’ll need a 10% downpayment, but at least you’re eligible!)
See if a Credit Rescore Would Help Your Chances
If you are struggling with loan approval, getting either high interest rates or complete rejection, perhaps a credit rescore would be right for you. Contact our team to learn more about rescoring your credit today!
“Juliann – Thank you very much for your patience and help with everything. I can say 150% that we could not have gotten through this without you. I have been through this process before a few times BUT never have received this type of care/attention. This process is intense and you managed to humanize this life changing experience for us – rather than being a loan number. If you or Home Point ever need an official recommendation from us, you can count us in.”
“Hey Chad – thank you so much to you in particular as well as your team. It’s been a real pleasure working with someone who’s as responsive and helpful throughout the process, as you’ve been. We really appreciate what you’ve done. ”
“Chad, Juliann and the team were great in helping me get through this process. It is not an easy process but they stayed with me the entire time and I am truly grateful. ”