Property Grunt

Monday, April 04, 2005

Resuscitating your credit.

The Grunt has touched upon the subject of credit particularly why its so important and how you can screw it up.

A recent New York Times article shows how one can repair their credit through rapid rescoring.

Your credit is the foundation of your financial health. A good credit score is a key to open the door to the basic needs we take for granted including housing transportation and communication. Take care of that puppy by paying your bills on time and not having credit card debt. Do not play if you can't pay. And remember. CREDIT CARD DEBT IS NOT GOOD DEBT TO HAVE AROUND! GET RID OF IT AS SOON YOU GET IT OR TRY TO AVOID CREDIT CARD DEBT ALTOGETHER!

Quickly Improving A Credit Rating

HOME buyers in search of a mortgage know that their credit history will play a key role in the outcome. And anyone who has tried to improve a credit score is probably aware that doing so can take months or years.

But it is sometimes possible for a borrower to raise his credit score in just a few days, using a strategy known as rapid rescoring.

"I've had a fair amount of success using rapid rescoring for clients," said Oded Ben-Ami, a senior loan officer for Sterling National Mortgage in Great Neck, N.Y. "And the couple of hundred dollars it costs is negligible compared with the benefits of getting a better interest rate, quicker approval and a higher maximum loan amount."

Mr. Ben-Ami said that when a borrower applies for a mortgage, the lender orders the borrower's credit score from a credit bureau. That score is based on information compiled by one or more of the three nationwide credit reporting services - Equifax, Experian and TransUnion. (Since each service collects information independently, each could have different information on file.)

The score calculated by the bureau, known as the FICO score (for the Fair Isaac Corporation, which developed it), is then used to determine not only whether the individual qualifies for a particular loan but also the interest rate that will be charged.

Since credit scores are so important, Mr. Ben-Ami said, it always makes sense to ensure that the information on a credit report is accurate.

But if a borrower discovers errors, it can take months of back-and-forth correspondence between the borrower, the creditor and the credit reporting service to correct them for free. Since mortgages often have to be secured within 30 to 45 days, it is often impossible to change a score quickly enough. But with rapid rescoring, a score can be changed in days.

Gerri Detweiler, a Sarasota, Fla., credit specialist and the author of "The Ultimate Credit Handbook" (Plume, 2003), said that with rapid rescoring, the loan officer, working with the lender's credit bureau - which charges an extra fee - can improve a credit score by considering new information.

Usually, she said, that is done by correcting erroneous information. If a report reflects a judgment that should not be there, and the borrower can offer written verification from the creditor who filed the judgment, the credit bureau can eliminate it.

It is also possible, Ms. Detweiler said, that negative information is being carried long after it should have been removed. "Collection agencies are notorious for reporting accounts for longer than they should be reported," she said, noting that accounts sent to a collection agency should be dropped after seven and a half years.

Lenders and credit bureaus will also work with a borrower to find other ways to improve a score quickly. A major factor in the FICO score is how close a person is to his or her credit limit, she said, so it may be possible to increase a score by spreading existing debt over several accounts or paying down debt on an account near its limit.

Ms. Detweiler said that since it costs anywhere from $30 to $120 to correct an individual item on a single credit report, it could cost several hundred dollars to correct multiple items on more than one report. "But in terms of the ultimate cost of the loan," she said, "that could be a small investment with a huge return."

Ryan Sjoblad, a spokesman for Fair Isaacs, said that if a borrower with a score of 674 qualified for a 7.82 percent mortgage, that borrower should be able to get a 6.13 percent rate with a 700 score. On a 30-year, $300,000 mortgage, the monthly payments would be $2,163 and $1,824 respectively. Over the life of the loan, the interest paid would be $478,806 and $356,569 respectively, a difference of $122,237.