That three-digit number that floats out there in cyberspace can have a big ole influence your big life decisions — including purchasing a home.
(Cough, cough… we’re talking about your credit score, which is influenced by your credit report.)
“Just about any financial decision could be affected by a person’s credit history,” says Rod Griffin, the director of public education at Experian.
Including buying a home.
There’s No Doubt Credit Scores Influence Mortgages
Many of us know credit scores can greatly affect mortgage rates and terms.
But just how much?
Aside from the loan-to-value ratio (LTV), credit scores are THE most influential factor in determining interest rates and costs, according to Debra Killian, a certified residential mortgage specialist.
“Even a small increase in a mortgage interest rate can cost the borrower thousands of dollars in interest over the life of the loan,” she says
Here’s an example: A $300,000, 30-year loan can cost $15,420 more with a 0.25% higher interest rate.
And it’s not just your interest rates, either.
If you’re taking out a mortgage, you’re required to have homeowner’s insurance, which is also affected by your credit score. People with poor credit scores can get stuck paying 114% more on that.
But don’t give up your home-buying dreams just yet.
If you really want to buy a home and are relying on a mortgage, there’s a little-known tool that you’ll want to ask your mortgage broker about.
It’s called a rapid rescore.
You Ask: What’s a Rapid Rescore, and Why Would I Need It?
Confession: I’d never heard of a rapid rescore until fellow Penny Hoarder Branndon Coelho asked if we’d written about it.
Nope — not until now, at least.
He’d first heard about it while chatting with his current landlord about buying a house. Coelho told the landlord that his family had worked hard to pay off their credit card debt, and now they were just waiting for their credit score to reflect that.
That’s when his landlord mentioned rapid rescoring.
When asked to define rapid rescores, Killian, the mortgage broker, said: “It’s a process that lenders use to update a credit report to correct accurate information and then have that same credit report rescored.”
The service is performed by credit services and is most predominantly used in conjunction with mortgages.
Coelho has been waiting about six weeks to see his hard work reflected in his credit score. He says two of the three bureaus have reflected the change thus far.
He’s not in a hurry to buy a home, but if he was, he could’ve requested a rapid rescore through a lender. He’d have needed written proof from the creditor, but those changes would’ve been reflected within about 48 hours, helping to drive down his mortgage rates.
Not only is the service used to quickly update information about bills paid, it’s also used in the case of accidents. Credit reporting agencies can accidentally misreport information — which isn’t rare, seeing as they’re taking care of millions of reports.
That’s when you’d file a dispute with the agency, followed by a rapid rescore request to see the changes reflected more quickly.
Here’s What You Need to Know About Rapid Rescores
There are a few things you need to understand when it comes to rapid rescores.
1. It’s Not Magic
Unfortunately, a rapid rescore isn’t just a bandaid you can put on your credit report. There must actually be errors or changes in your credit history for it to work.
“You have to take some action,” Killian says.
2. Not All Lenders Accept Rapid Rescore Reports
Killian warns: Some lenders don’t accept a rescore, so be sure to always ask before moving forward.
3. This is a Business-to-Business Service
Remember: This is a business-to-business service between the lender and the creditor. You can’t simply Google rapid rescore and do it yourself.
4. Consumers Should Never Have to Pay
Because the consumer isn’t even involved in this process, it shouldn’t cost a thing, but always ask your lender.
Some credit reporting agencies require the lender to take care of it. That’s what Killian does. She says she pays $35 per tradeline per credit bureau.
5. Follow Directions
If you’ve worked with your lender to initiate a rapid score, stay on track. Don’t do anything to chance your finances.
“They really need to follow directions and keep paying everything on time and not incur or open new debt,” Killian says.
6. Nothing’s Guaranteed
“I can never guarantee I can get your score to 750,” Killian says.
However, there are systems she can use to run “what if” scenarios that will pretty closely predict how your credit score will adjust if, say, you pay off that $500 Visa card. That’s as long as everything else stays the same. (Revisit No. 5.)
7. A Consumer Credit Report Isn’t the Same — But That’s OK
Unfortunately, the credit report you pull isn’t going to be the same one your lender pulls. However, it’s a perfectly fine reflection, Griffin, from Experian says:
“The scores you get probably won't match what the lender has — or the numbers will be different — and that's OK,” Griffin explains. “The risk factors tend to be very, very similar if not the same from one score to another. They tell you what to work on in your credit report.”
Before you even visit your lender, you can start taking steps to address the risk factors on your credit report (like credit card debt) and to see just how much your score can increase when negative marks go away.
And also know that you should never pay for your credit report, either. Go ahead and pull a free copy of yours here.
8. Rapid Rescores Can Save You Thousands
“A 690 to a 750 could be a difference between a quarter of a percent — or more — of the life of a loan,” Killian says. “We’ve saved people thousands and thousands of dollars.”
It all depends on the type of loan you take out, your down payment and, yes, your credit score.
So if you’re looking into buying a house soon, keep this tool in mind. It could save you tons in the long run.
Carson Kohler (@CarsonKohler) is a junior writer at The Penny Hoarder.
source The Penny Hoarder http://ift.tt/2vYlly8
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