What is a 'rapid rescore' and how does it work?

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If you're having trouble qualifying for a mortgage, your credit scores could be to blame. In fact, credit problems are the reason about a third of home loan applications get denied.

As a homebuyer educator and a former HUD-certified housing counselor, I've found that many buyers don't know about a free tool that can help them overcome this problem: rapid rescoring.

Typically, it takes two to three months to see positive changes reflected in your credit scores. But if your lender offers rapid rescoring, you can potentially gain anywhere from 20 to 100 points in as little as two days. Here’s a closer look at how rapid rescoring works.

What is a rapid rescore?

Rapid rescoring is a service some lenders use to quickly add new (typically positive) information to your credit reports and update your scores.

Without rapid rescoring, it usually takes 30 to 60 days for new information to show up on your credit reports, and another 30 days or more for your credit scores to update. But with rapid rescoring, you can have a new score in just a few business days.

If you're in the process of applying for a mortgage, a rapid rescore can help you quickly resolve the following issues:

- Getting preapproved: Improving your scores can help you go from being denied a mortgage to being preapproved. Plus, having mortgage preapproval makes sellers more likely to accept your offers. - Getting lower interest rates: By moving into a higher credit score range, you can get approved for a lower mortgage interest rate and save a significant amount of money on your loan repayment.

For many buyers, that second point is especially important. In my experience, I've found that most home buyers overlook how much money they can save on a mortgage by making a small reduction in their interest rates.

For example, if you increase your credit scores from 680 to 720, the interest rate on your mortgage can drop from around 6.93% to 6.75%. On a $450,000 mortgage, that reduces your monthly payment by $54 and saves you $19,458 in interest over the life of your loan. When else will you have the opportunity to save that much money?

When are rapid rescores used?

Rapid rescoring can be used when you apply for a loan. If your credit is preventing you from being approved for the loan or from qualifying for the terms you want, the lender can use rapid rescoring to help you get a better outcome.

For lenders who have access to rapid rescoring, they can also use it to identify which specific actions you can take to improve your credit scores, as well as estimate how many points you might gain.

If you're in a position to make any of the following improvements to your credit profile, rapid rescoring could improve your scores in a matter of days:

- Pay off overdue debt

- Reduce your balances on credit cards or loans

- Dispute errors and have them removed from your credit reports

- Increase your credit card limits without increasing your balances

- Become an authorized user on a credit card that has a positive payment history

Rapid rescore step-by-step process

When you work with a lender who uses rapid rescoring, here's what the process will look like:

- You apply for the mortgage.

- The lender pulls your credit reports and views your scores.

- The lender may run a diagnostic report and recommend actions that will increase your scores.

- You make the necessary changes and provide documentation to the lender.

- The lender submits your information to one or more credit bureaus and requests a rapid rescore.

- The credit bureaus update your reports.

- The lender pulls new copies of your credit reports.

- The lender reevaluates your scores and updates your loan offer.

How long does a rapid rescore take?

There's no guaranteed timeframe to complete a rapid rescore, but the process usually takes two to seven business days. By contrast, it can take months to see your credit scores change without rapid rescoring.

Read more: How long does it take to build credit from scratch?

What a rapid rescore can and can't fix

Rapid rescoring helps you quickly add or remove information from your credit reports. This includes things like debt you've paid off and errors you've had fixed.

However, rapid rescoring can't fix all of your credit problems. Here are some of the things rapid rescoring can't do for you:

- Remove accurate information from your credit reports.

- Force information off of your credit reports before it's due to be removed.

- Predict what your new scores will be with full accuracy.

It's also worth noting that if you have new negative information on your credit reports, such as a missed payment or an account sent to collections, a rapid rescore can cause a quick drop in your scores.

How much does rapid rescoring cost?

Mortgage lenders pay for rapid rescoring, so it doesn't cost you anything as the buyer.

For lenders, they'll pay anywhere from $25 to $50 per credit report, per applicant. So if you have a co-borrower, and the lender uses rapid rescoring for all six of your credit reports, it could cost the lender as much as $300.

If you feel bad about costing the lender extra time or money, you definitely shouldn't; the lender is there to work for you, and you're potentially making them a lot of money. On a $300,000, 30-year mortgage, the average borrower will pay the lender anywhere from $378,000 to $454,000 in interest charges alone.

How to make rapid rescoring work for you

Rapid rescoring can help you gain points fast, but it isn't a cure-all for bad credit. If you want to maximize your credit scores and qualify for the best loans, consider these additional tips for home buyers:

- Start working on your credit early: Some lenders don't offer rapid rescoring. But even if they do, you may still need time to add more positive information to your reports, such as on-time debt payments. I recommend pulling your credit reports from AnnualCreditReport.com at least 6-12 months before you plan to buy. - Be cautious with your down payment: Many buyers have trouble deciding if they should use all of their savings for a down payment or use some of that money to pay off debt. Don't guess. Instead, ask your lender to run simulations and recommend the best option to save you money on the loan. - Take careful notes: It's easy to get overwhelmed and confused during the homebuying process. When your lender recommends making credit changes, make sure you record the conversation or get the recommendations in writing so you know exactly what to do. - Stay away from credit repair:If you're desperate to improve your scores, credit repair services might seem like the answer. But credit repair companies are often misleading, and they charge you money to file credit disputes, which is something you can do on your own for free.