Credit scores are used by creditors to determine what rate of interest to charge borrowers. An increase in points can make a huge difference to your scores and to the interest rate you'll be charged. Sometimes you can get your credit report score to rise drastically by making a few alterations to your credit bureau report. There is a specialized service that seeks to improve your credit scores and save you precious dollars when it comes to interest charges. This is called Re-scoring and this service is provided by small autonomous credit bureaus called "resellers".
The interesting part is that these resellers have contracts with the 3 major credit bureaus (Transunion, Experian, Equifax) that forbid them from directly providing consumers their services. So you can't really approach a reseller directly. If you want to use the services of a reseller you'll have to go about it in a roundabout fashion. The 3 credit reporting agencies have laid down three conditions to approach a reseller. First of all, the consumer has to be a prospective client of the lender or mortgage broker. Secondly it's compulsory that the lender / mortgage broker is a client of the reseller and finally the appeal for the resellers help must be made by the lender / mortgage broker.
You'd do well to remember that it's not necessary for the lender to inform a borrower that it uses a reseller that can enhance credit scores. The re-scoring system came into existence mainly because there was a lot of erroneous information in the 3 credit bureau reports that would prevent consumers from getting mortgages. Another reason was that while loan approval was becoming very expedient, the credit report corrections would take about 30-45 days. So this delayed the process of approving mortgages. With the re-scoring system, creditors can now analyze the 3 credit reports in a day, make alterations and submit it to the 3 credit bureaus where they can be pulled up and reviewed by Freddie Mac or Fannie Mae or some other loan guarantor.
How Does Credit Re-scoring Work?
The procedure is straight forward:
– The lender sends the prospective borrowers credit report to the reseller. The reseller examines it to determine whether re-scoring will make a significant improvement or whether it's just a waste of time.
– The reseller then formulates a plan for amending or rectifying the credit bureau report to increase the credit score. This plan includes things that the borrower must take care of like paying off debt, procuring documents etc.
– Then the reseller prepares a recommendation list based on the credit report, the target scores and the circumstances of the borrower and conveys the directives to the borrower through the lender / mortgage broker.
– The prospective borrower then carries out the instructions, gets the evidence from creditors and even Court if need be and gives the documents incorporating the changes to the loan officer who in turn passes it on to the reseller.
– The reseller checks the documents, confirms their authenticity and submits them to the re-score desk of the credit bureaus.
– The reseller then makes sure that the changes are incorporated in the credit reports and that the altered reports are made available to lenders and loan guarantors.
There are two frequently used ways of re-scoring. One way is to rectify errors like delays in payments or old balances that still appear on the credit report causing the consumer to appear steeped in debt. The other way is to regulate debt either by completely discharging credit card dues or by simply rearranging debt so that the balances on revolving accounts are below 50% of the credit limit.
Credit re-scoring is a great way to improve credit scores since sometimes even a two point variation can make all the difference when it comes to getting attractive interest rates.