Friday, November 16, 2007

Credit Repair and Credit Rescore

You've probably seen the signs posted illegally on city sidewalks promising "Credit Repair." These scam artists promise desperate consumers that bankruptcies and chronic late payments can be magically removed from their credit reports for a fee. The only truthful part of this claim is the fee. Only time (seven to ten years) will remove bankruptcies and improper use of credit from a credit report.

Rapid Credit Rescoring is something entirely different. If you've ever applied for a mortgage, you know the importance of your credit score, which reflects your history of debt repayment and supposedly predicts the likelihood that you will repay your mortgage on time. A minimum credit score of 650 is required for most mortgages today. Loan qualifying is automated now, and there is little to no flexibility in the requirements.

Suppose you have a credit score of 642. If your lender doesn't know about Rapid Credit Rescoring, you are out of luck. If your lender is on the ball, she will look for minor issues that may be easy to remove from your credit report. Suppose you have always paid your bills on time, but one payment was 30 days late because you moved and the bill was lost in the shuffle. Or maybe you had a parking ticket, and you didn't know until your credit report was pulled that the city had turned your ticket over to a collection agency. Or maybe you cancelled your membership in a book club, but the book club continued to bill you for books, and when you didn't pay, the book club charged off your small debt and reported it to the credit bureau.

Believe it or not, just one of these issues will actually prevent you from buying a house. However, if you are smart enough to choose a lender who knows about Rapid Credit Rescoring, the lender can run your credit report through a "what if" program and determine how much your credit score might be increased if you could remove these small blemishes. You need to provide proof that you paid the parking ticket, or you need to call your credit card company, explain why you were late that one time, promise never to do it again, and beg them to remove the late pay from your credit report. Usually they will do this, especially if you call on Friday and act really polite and contrite.

Once you have proof that you have rectified your little credit crime, your mortgage lender can submit the proof to a company for Rapid Credit Rescoring. This will cost you about $140. What? Just to get a new credit score? Yes, that's right. But remember, you must either 1) get your credit score in line with the automated lending standards, or 2) pay a higher interest rate, or 3) forget about buying the house you want. $140 is a bargain if it enables you to buy the house at the best possible interest rate.

If you are preparing to buy a house, get your free credit report several months in advance. There are three credit reporting bureaus, and you need to get a report from each one, because they don't all have the same information, and you don't know which bureau's report your lender will use. It can take several months to remove errors and surprises from your credit report, but if you do all the legwork yourself and allow plenty of time, the corrections will be reflected in a new credit score in about 30 days. Then you can avoid last minute trauma during the home buying process, and save the $140 charge for Rapid Credit Rescoring.

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