Rapid Credit Score Increases – Real Case Studies

The following case studies or rapid credit score increases are based on real scenarios. Identifying information has been removed to maintain privacy. Numbers and dates have been adjusted in order to further preserve privacy. All numbers and timelines are very accurate for a situation and have not been exaggerated. Terms for the below scenarios were accurate at the time each scenario occurred. Mortgage guidelines, pricing and policies constantly change and the below scenarios may no longer be valid.

Case 1:

$3595 credit card payment results in a $5000 benefit plus a balance reduction of $3595 for no net cost to the applicant. 

On October 5, Mr. & Mrs Doe came in to Mid Oregon Lending to apply for a loan to purchase a home. During the initial application interview when asked about their credit score they knew it was in the high 600 range. The borrowers stated the score was at that level due to several student loans and late payments several years ago. They felt there was no potential for a score improvement beyond the passing of time. When credit was run the credit score used for mortgage underwriting was 678. For conventional financing a 740 or higher credit score has the best pricing. A 678 credit score with a 20% down payment affected the cost of this loan by 2.25 discount points (insert a hyper link to definition of discount points) translating to $4500 in additional costs on a $200,000 loan amount. https://www.fanniemae.com/content/pricing/llpa-matrix.pdf

A credit analyzer was run reflecting a potential 55 point improvement in the credit score. The borrower needed 42 points in order to optimize the loan cost. In order to accomplish the desired score improvement the credit analyzer suggested 3 actions:

  1. Reducing the average usage (the sum of balances divided by the sum of credit limits) on your
    revolving accounts. You can do this by paying down the balance on an existing account.
    Action: Paying down the balance of $3595 to $231 on Credit Card #1, and updating the balance through rapid rescoring.
    Score impact: +44
  2. Reducing the average usage (the sum of balances divided by the sum of credit limits) on your
    revolving accounts. You can do this by paying down the balance on an existing account.
    Action: Paying down the balance of $1583 to $173 on your Credit Card #2, and updating the balance through rapid rescoring.
    Score impact: +8
  3. Reducing the number of accounts with a balance. You can do this by paying down the balance on
    an existing account.
    Action: Paying down the balance of $1583 to $0 on your Credit Card #2, and updating the balance through rapid rescoring.
    Score impact: +3

The borrower opted to completely pay off credit card #1. The credit card #1 balance reflected on the credit report was over the available limit at 119.8% of limit. Credit was updated December 6th and the score increased to 720. The 720 score improved the associated discount points 2% vs. 678. This saved the borrower $5000 on a $250,000 loan amount.

In addition to the savings in the cost of the loan the borrowers had a credit card balance reduction of $3595. Every dollar used to benefit the borrowers’ loan further benefited them in the credit card balance reduction. The borrowers did not receive the entire estimated score impact of 41 points due to changes in other accounts in the time period between reports. The primary change was an increase in the balance of credit card #2 to 36% of the limit.

The borrowers closed in December and were overjoyed! This further drives home the point to apply early to determine how to optimize your credit score and your loan costs.

Case #2:

Credit score significantly reduced for applicant that pays down credit card each month. Borrower penalized $3000 due to high reported balance.

On July 13 a borrower applied for a conventional loan with stable income, progressively responsible positions and increased income over the past 8 years. The borrower has personally saved well over a 20% down payment for the desired price range. Borrower has limited but established credit experience with 2 student loans (now paid off) and one credit card with a $5000 available limit that is paid off monthly. Based on the verbal profile I expected an upper 700s to a low 800s credit score. The actual usable mortgage credit (hyper link definition of usable score) score was 698. No late or derogatory information was reported. The credit report reflected a score potential of 102 points. This is the highest score potential I have seen and would put the score where my experience expected it to land.

The score analyzer returned the following information:

How much cash is needed?
Disposable cash setting: $5,000.
Cash needed for these actions: $3,369. This is in addition to your monthly payments, and is an estimate based on the balances reported in this credit report.

These actions may raise your score
The estimated score change is based on doing all the actions in the order shown.
Reducing the average usage (the sum of balances divided by the sum of credit limits) on your revolving accounts. You can do this by paying down the balance on an existing account.

Action: Paying down the balance of $3629 to $652 on your Credit Card#1, and updating the balance through rapid rescoring.

Score impact: +84

Reducing the total debt on your non-mortgage accounts. You can do this by paying down the balance on an existing account.

Action: Paying down the balance $3629 to $300 on your Credit Card #1, and updating the balance through rapid rescoring.

Score impact: +18

The borrower paid credit card #1 down to a $0 balance as usual and did not use the card after the pay down. Credit was re-run on August 15. The usable mortgage credit score improved to 779 an increase of 81 points. My best guess is the full score improvement was not achieved due to the lack of reported balances on credit accounts. A higher score was not needed to obtain the best terms for the applicants loan. The loan cost differential between a 698 and 740 plus score for this loan program was 1.5 discount points or $3000 on a $200,000 loan amount.

further reading: https://www.fanniemae.com/content/pricing/llpa-matrix.pdf

Credit Analyzer Notes on Actions (source: Credit Plus)

About rapid rescoring disputes:

After paying down accounts or transferring balances, you may need to gather some documentation from your creditors and give it to your loan officer to complete your rapid rescoring disputes. The best possible documentation is a letter from the creditor. It must be on company letterhead and from an authorized employee, and must clearly instruct the credit bureau to correct specific information. The letter must be dated and include the account number, your full name and address, and the name, phone number, and signature of the employee. The phone number must be a direct line (extensions are allowed) that the credit bureau can use to verify the information. The loan officer will deliver the documentation to the appropriate parties for verification, so that changes can be made to your credit report. When the changes are complete, the loan officer should get a new report with an updated score. Check that the information was updated correctly. During this process, avoid making changes to your credit other than those recommended to you. Also, first speak with your loan officer before disputing any information on your own, as consumer disputes can prevent rapid rescoring disputes for 30 days.

Understanding the estimated score increase:

The score change shown is only an estimate, and there is no guarantee that your credit scores will increase by this exact amount should you take all of the recommended actions. First, other information in your credit report (such as account balances) may have changed between the initial report and the report obtained after rapid rescoring. When using a rapid rescoring service, it may take 3 or more days after your disputes are submitted to receive an updated credit score. This tool assumes that your accounts will not be re-reported by lenders during that time period. Second, in the course of processing your dispute, the bureaus may update other account information that you did not dispute. As a result, the score may decrease in a situation where it was expected to increase. For example, if the balance is updated, the bureau may decide to also refresh the payment status, revealing that you have a more recent delinquency. Such unintended changes may lower the score more than correcting the disputed information raises it.

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