If you’re having trouble qualifying for a mortgage, your credit score could be to blame. In fact, credit problems are the reason why about a third of home loan applications are rejected.
As a homebuyer educator and former HUD-certified housing counselor, I’ve found that many homebuyers aren’t aware of a free tool that can help them overcome this problem: Rapid Score Recovery.
It typically takes two to three months to see positive changes reflected in your credit score. But if your lender offers a quick payback, you can potentially earn between 20 and 100 points in as little as two days. Here’s a closer look at how fast recovery works.
What is a quick score?
Rapid retrieval is a service that some lenders use to quickly add new (usually positive) information to your credit reports and update your scores.
Without a quick rebound, it typically takes 30 to 60 days for new information to appear on your credit reports and another 30 days or more for your credit scores to update. But with a quick recovery, you can get a new score in just a few business days.
If you are in the process of applying for a mortgage, a quick re-score can help you quickly resolve the following issues:
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Get pre-approved: Improving your scores can help you go from being denied for a mortgage to being pre-approved. Additionally, having a mortgage pre-approval makes sellers more likely to accept your offers.
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Get 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 payment.
For many buyers, that second point is especially important. In my experience, I have 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 raise your credit score from 680 to 720, your mortgage interest rate may 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 so much money?
When are quick scores used?
Quick recovery can be used when you apply for a loan. If your credit prevents you from being approved for the loan or qualifying for the terms you want, the lender can use fast recovery to help you get a better result.
Lenders who have access to fast score recovery can also use it to identify what specific actions they can take to improve their credit scores, as well as estimate how many points you could earn.
If you are able to make any of the following improvements to your credit profile, a quick recovery could improve your scores in a matter of days:
Quick step-by-step recovery process
When you work with a lender that uses fast recovery, here is what the process will look like:
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You apply for the mortgage.
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The lender pulls your credit reports and views your scores.
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The lender can run a diagnostic report and recommend actions that will increase your scores.
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You make the necessary changes and provide the documentation to the lender.
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The lender sends your information to one or more credit bureaus and requests a quick re-score.
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The credit bureaus update your reports.
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The lender obtains new copies of your credit reports.
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The lender reevaluates your scores and updates your loan offer.
How long does a quick recovery take?
There is no guaranteed time frame for completing a rapid re-score, but the process typically takes two to seven business days. On the contrary, it can take months for your credit score to change without a quick recovery.
Read more: How long does it take to build credit from scratch?
What Quick Scoring Can and Can’t Fix
The new Quick Score helps you quickly add or remove information from your credit reports. This includes things like debts you’ve paid and mistakes you’ve fixed.
However, a quick recovery cannot solve all your credit problems. Here are some of the things that rapid recovery cannot do for you:
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Remove accurate information from your credit reports.
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Force information to be removed from your credit reports before it needs to be removed.
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Predict what your new scores will be with complete precision.
It’s also worth noting that if you have new negative information on your credit reports, such as a late payment or an account sent to collections, a quick re-score can cause a rapid drop in your scores.
How much does quick recovery cost?
Mortgage lenders pay for a quick upturn, so it costs you nothing as a buyer.
Lenders will pay between $25 and $50 per credit report per applicant. So, if you have a co-borrower and the lender uses rapid retrieval of your six credit reports, it could cost the lender up to $300.
If you feel bad about costing the lender extra time or money, you definitely shouldn’t do it; The lender is there to work for you and is potentially making you a lot of money. On a $300,000, 30-year mortgage, the average borrower will pay the lender between $378,000 and $454,000 in interest charges alone.
How to make fast recovery work for you
The new Quick Score can help you earn points quickly, but it’s not a panacea for bad credit. If you want to maximize your credit score and qualify for the best loans, consider these additional homebuyer tips:
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Start working on your credit early: Some lenders do not offer quick recovery. 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 obtaining your credit reports from AnnualCreditReport.com at least 6 to 12 months before planning to purchase.
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Be careful with your down payment: Many buyers have trouble deciding whether to 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.
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Take careful notes: It’s easy to feel overwhelmed and confused during the home buying process. When your lender recommends making credit changes, be sure to record the conversation or get the recommendations in writing so you know exactly what to do.
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Stay Away From Credit Repair: If you’re desperate to improve your scores, credit repair services may seem like the answer. But credit repair companies are often deceptive and charge you money to file credit disputes, something you can do yourself for free.