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National foreclosures decreased 12 percent in November

National Mortgage Professional
Mar 13, 2006

How effective is credit rescoring?Sherene Costanzocredit restoration, rapid rescoring Rapid rescoring and credit restoration are credit score improvement services that can be quick and effective when trying to find a loan for your clients with poor credit. Many people do not quite understand the difference between rapid rescoring and credit restoration. Both services can boost a client's credit score or help close a loan, but there are several differences between them. Rapid rescoring can be a fast and effective way to correct errors and omissions on a client's credit report within as little as 72 hours, but it can be quite expensive. The process does have positives and negatives, and not every client is a good candidate for the service and may want to consider credit restoration services as an alternative. Credit restoration may show results in as little as 30 days and may help those who don't have the proof to go through rapid rescoring. What is rapid rescoring and who provides the service? Rapid rescoring is a process that makes corrections to a person's credit report within as little as 72 hours. It may take as long as two weeks, but many times, this is still fast enough to close a loan that may have otherwise fallen through. Companies that provide rapid rescoring work directly with lenders and brokers in order to assist the borrower. These companies also work closely with the three major credit bureaus to make corrections quickly. Many of these companies also provide other credit reporting services to the broker and lenders, such as tri-merged credit reports. What is credit restoration? Credit restoration companies rely on the Fair Credit Reporting Act (FCRA) to assist consumers in increasing their credit scores. The FCRA provides that the consumer has the right to question any unverifiable, inaccurate or erroneous information reported in his credit file with any of the three major credit bureaus. This information may include reporting about collections, late payments, charge-offs, judgments, tax liens, foreclosures, garnishments and bankruptcies. Once the credit bureaus are notified of a disputed item on a consumer's report, they have 30 days from the date they are notified of a dispute to verify the item in question with the original creditor. If the original creditor does not verify the account within that time, the delinquent account or late payment must be corrected or deleted from the credit file. At this point, the score will adjust immediately with the three major credit bureaus. Credit restoration can be very effective and affordable. Although consumers can and frequently do choose to dispute and work toward correcting inaccurate information on their own, the process can be very confusing and time consuming. Credit restoration companies present another convenient option, just as people can file their own taxes but may choose to pay an accountant to provide the service. In addition to communicating with the bureaus regarding the disputed items, some credit restoration companies also consult with clients on how to obtain and maintain good credit. Also, some companies may help consumers settle accounts that are not removed during the process. How effective are these processes? In some cases, rapid rescoring can work magic; however, there are some stipulations and pitfalls. The process may not help in every case. The catch to rapid rescoring is that the borrower must have proof, usually in writing, from the creditor to send over to the rescoring company. The rescoring company will then turn it over to the bureaus. At this point, the bureaus will make the correction to the report and the score adjusts. The bureaus have specific departments that handle rapid rescoring so that corrections can be made in a timely manner. In certain cases, credit restoration can delete the credit history of the negative item, where rapid rescoring will only mark the status paid. A paid status on a charge-off or collection account does not erase the negative history from the credit report. The only benefit is that the collection is satisfied and the score may increase by a few points. The paid collection will report for seven years. If you are only looking to satisfy the collection for underwriting purposes, rescoring will work for you. If you really need a score boost, you may want to consider credit restoration. Credit restoration focuses on removing the entire negative history of the account. If the entire history of the collection account is deleted through the credit restoration process, the score is likely to increase by several more points. Rapid rescoring requires proof, which is provided by the creditor; therefore, if an item is in dispute with the creditor, you will not have proof of an error. In most cases, the client should have a letter from the creditor admitting that the account is being reported incorrectly. Some rescoring companies may call the creditor and request the necessary documents. In many cases, the borrowers do not have any proof and therefore cannot use the rapid rescoring process, which would then steer them toward credit restoration. Obviously, if proof is required, you will not be able to remove any true negative items through rapid rescoring. These services can be costly, depending upon the number of errors. On average, you should expect to pay around $100 for each error to be corrected with all three credit bureaus. The average cost of credit restoration ranges from $300-$750, so if you have several items you need to challenge, you may be better off with credit restoration. Prices vary with each company. More money does not always mean better service. There is no guarantee that the score will increase. If proof is provided, the error must be corrected; however, this does not guarantee any change in the credit score. So much is unknown about the calculation of the credit score, which makes it impossible to predict a change in the score; although, manipulating the factors of the score can have a positive influence. This can be accomplished with both rapid rescoring and credit restoration. The score also reflects the credit behavior of the client at all times. The client is responsible for his credit and must be on his best credit behavior during these processes. These services cannot control the clients' behaviors. Irresponsible behavior can conflict with the services and have a reverse affect on the credit score. Rapid rescoring and credit restoration are both useful tools for correcting credit reports and increasing credit scores. Rapid rescoring can be useful when a broker gets caught in a bind and needs a quick fix when financing a client. Many times, because of erroneous information on a credit report, rapid rescoring can mean the difference between making and losing a deal. If you have several items to remove, credit restoration can be easier and less expensive than rapid rescoring. Results are still produced quickly, though not quite as fast as with rapid rescoring, and they will vary depending on the company used. Consider both options and decide which service will best fit you and your clients' needs. Sometimes, a client may even benefit from using both rapid rescoring and credit restoration for maximum results. The key for the lenders and brokers is using these tools to overcome the obstacles that prevent them from closing the deal. Sherene Costanzo is vice president of Credit Consultants Inc. She may be reached at (888) 522-7007 or e-mail [email protected]
Published
Mar 13, 2006
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