9. Emergency! Fixing Your Credit Score Fast

If you’ve read this far, you know what a tedious process fixing errors on your credit report can be.

Credit bureaus have 30 days to investigate complaints and often defer to what lenders say about you, regardless if it’s true. Even if all parties agree that a mistake has been made, the errors can continue to crop up in your files thanks to the automated nature of most credit reporting. You might have to contact creditors and the bureaus several times to get inaccuracies deleted. The process might take weeks; at worst, you might be fighting the battle for months or even years.

If you’re in the midst of trying to get a mortgage, these errors can cause serious problems. You might not have enough time to fix your report before the house falls out of escrow or you get stuck with an interest rate much higher than you deserve to pay.

Troubles such as these might tempt you to turn to one of the many companies that promise “instant credit repair” or that guarantee to boost your credit score. No legitimate company makes such promises or guarantees, though, so anyone who hires one of these outfits is begging to be scammed.

There are, however, a growing number of genuine services that can fix mistakes on your credit report in 72 hours or less. Read on to learn more.

• They can’t deal with you directly as a consumer—Rapid rescoring is typically offered by small credit-reporting agencies, which serve as a kind of middleman between the bureaus and the lending professionals.

These agencies, which are often independent but might be subsidiaries of credit bureaus, provide special services for loan officers and mortgage brokers such as merged or “3-in-1” credit reports. To benefit from rapid rescoring, you need to work with a loan officer or mortgage broker who subscribes to an agency that offers the service.

• They can help you only if you have proof, or if proof can be obtained—Rapid rescoring services aren’t designed to help people who have yet to start the credit-repair process. You need something in writing, such as a letter from the creditor acknowledging that your account was reported as late when you were in fact on time. (This is one of the reasons that it’s so important to get everything in writing when you’re trying to fix your credit.) If you don’t have such proof, but the creditor has acknowledged the error, some rapid rescorers can get the proof for you. However, that might add days or weeks to the process.

• They can help you get errors fixed, but they can’t remove true negative items that are in dispute—Again, you need proof that a mistake was made—not just your say-so. If the credit bureau is already investigating your complaint about an error, the item typically can’t be included in a rapid rescoring process.

• They can’t promise to help your score—As you read in Chapter 2, “How Credit Scoring Works,” sometimes removing negative items can actually hurt a score—strange as that might seem.

The scoring formula tries to compare you to people who have similar credit histories. If you’ve been lumped into the group with a bankruptcy or other black marks on your report, you might find that your score falls when some of those negative items are removed. Instead of being at the top of the bankrupts’ group, in other words, you’ve dropped to the bottom of the next group—the folks who have better credit.

More commonly, removing an error might not help your score as much as you might have hoped and might not win you a better interest rate. There are no guarantees with rapid rescoring.

But Doug in Phoenix is one of the many borrowers who have benefited so far. Doug filed for bankruptcy in 1998, but several of his wiped-out debts were still shown as open and unpaid on his credit report five years later when he applied for a mortgage.

Technically, all the accounts should have been reported as “included in bankruptcy.” It’s a common enough error, and one that can usually be fixed—if you have a month or more.

Doug didn’t. He worried that he would lose the house he wanted to buy and perhaps miss out on some of the lowest rates borrowers had seen in years. Doug’s mortgage broker used his bankruptcy papers to prove the errors to a rapid rescoring service, which fixed the problems and boosted Doug’s score.

The rate he got—just over 7 percent—was still higher than someone who had good credit would have received at the time, but it was much better than the rate he might have received without the fix.

This is exactly the kind of intervention that the National Association of Mortgage Brokers was hoping for when it began lobbying in 1997 for a way to speed up the dispute process and keep old, proven errors from killing mortgage deals. Congress had made some updates to the Fair Credit Reporting Act in 1996 that were supposed to help consumers, but the problems remained widespread.

Once upon a time, brokers and other lending professionals could do something about these problems. In the days before the widespread use of a credit score, a broker or loan officer could intervene to convince a lender to ignore mistakes or small blemishes on a client’s credit file. Everyone involved understood that credit report errors were common, and having an experienced loan pro vouch for your creditworthiness could often get a deal done.

With the advent of credit scoring and automated loan processes, though, those opportunities to advocate for clients quickly evaporated. Lending professionals shared consumers’ frustration when erroneous information continued to be reported by the bureaus—information that often dampened credit scores and resulted in worse rates and terms than the borrower deserved.

The mortgage brokers wanted a way to cut through the bureaucracy and speed up the process. Independent credit reporting agencies, with their smaller, specialized staffs, began to fill the need.

Here’s how it works. Your loan officer or broker collects proof from you that a mistake has been made, and he transmits that proof to the credit agency that provides the rapid rescoring service.

The rescorers, in turn, have special relationships with the credit bureaus that allow their requests to be processed quickly. The rescoring service sends proof of errors to special departments at the credit bureaus, and the departments contact the creditors (usually electronically). If the creditor agrees that an error was made, the bureaus quickly update your credit report. After that happens, a new credit score can be calculated.

The cost for this service is typically somewhere between $30 and $45 for each “trade line” or account that’s corrected. However, some agencies provide the rescoring for no extra charge, as part of a package of services provided to lending professionals.

The availability of rapid rescoring doesn’t change the fact that you need to be proactive about your credit. Months before applying for any loan, you need to order copies of your reports and start challenging any inaccuracies. You also need to keep your correspondence about these errors. After all, rapid rescorers typically require some kind of paper trail to follow to prove to the bureau that the mistakes indeed exist.

If you find yourself in the middle of getting a mortgage and an old problem recurs, rapid rescoring can help you get rid of the problem and save the deal. So, how do you find one of these services?

If you’re already dealing with a loan officer or mortgage broker, ask whether she has access to a rapid rescoring service. If your lending pro has never heard of rapid rescoring, ask her to contact the agency that provides her company with credit reports to see if it’s available.

Kyle, a mortgage consultant from Chicago, learned about rapid rescoring from an article I wrote and emailed me for suggestions on how to find such a service. It turned out that the agency that his company used for credit reports had long provided rescoring—Kyle just didn’t know it.

What if you’re not in the market for a mortgage, or otherwise don’t qualify for rapid rescoring, but you still want quick results?

You’ll have to redefine your definition of quick, for starters. Few things are rapid in credit repair. The following techniques typically won’t show results in 72 hours, but you might see a noticeable bounce in your score in 30 to 60 days.

One simple way to improve your ratio is to redistribute your debt. If you have a big balance on one card, for example, you could transfer at least some of the debt to other cards. It’s typically better for your scores to have small balances on a number of cards than a big balance on a single card.

You also could investigate getting a personal installment loan with your local credit union or bank, and use the money to pay down your cards. Applying for the loan may ding your scores a bit, but that’s likely to be more than offset by the improvement to your scores from reducing the balances on your credit cards. (Credit scoring formulas are much more sensitive to the balances on revolving debt, such as credit cards, than to the balances on installment loans.)

A riskier strategy might be to take out a 401(k) loan. These loans don’t show up on your credit report, but you do face a big hazard: If you lose your job, you typically have to pay the money back quickly or you’ll incur taxes and penalties on the balance. If you decide to take a 401(k) loan, make sure you can repay the loan quickly to minimize the risk.

Whatever you do, don’t cash out a 401(k) or withdraw money from an IRA to pay off credit card debt. A few points’ difference on your credit score is not worth the short- and long-term costs you’ll pay for a premature withdrawal.

Although moving debt around can lift your scores, the best strategy for your numbers and your finances long-term is to pay off revolving debt—either out of your current income, using cash that’s sitting in a savings account, or selling stocks or other investments, as long as they aren’t in a retirement account.

Some people insist they’ve boosted their scores by paying off their cards in full a few days before their statement closes. If their credit card issuers usually send out bills around the 25th, for example, these folks check their balances online about a week before and pay off whatever’s owed, plus a few bucks to cover any charges that might crop up before the 25th. By the time the bills are actually printed, their balances are pretty close to zero. (If you use this technique, just make sure you make a second payment after your statement arrives if your balance isn’t already zero. That will make sure you don’t get dinged with late charges—and yes, that can happen, even though you made a payment earlier in the month.)

An easier way to keep your balances down is simply to pay cash for most purchases in the three months or so before you plan to get a loan.

Don’t ignore a collection just because it’s small or it’s listed as paid off. These are serious negative marks that can significantly depress a credit score. But don’t get too upset if the credit bureaus list the wrong employer or misspell your middle name. The credit scoring formula doesn’t even consider these minutiae.

Darren of New York had a great FICO score with Experian but only fair scores with Equifax and TransUnion. The reason? Most of his credit history was with a single credit union, and that credit union reported only to Experian:

“Since mortgage lenders [use] the middle score,” Darren said, “I am not getting the best deal because that is not an accurate score.”

The middle score doesn’t reflect Darren’s full credit history.

Darren hasn’t been able to convince his credit union to report to the other two bureaus. That means he’s pretty much back to slow-lane solutions, such as getting a credit card or installment loan from a lender that reports to all three bureaus and making on-time payments.

Disputing too many items at once is also a good way to convince credit bureaus that you’re filing “frivolous” disputes, and they might refuse to investigate at all.

To be on the safe side, don’t dispute more than three or four negative items at once, unless (like Doug’s bankruptcy accounts) your disputes are related. And don’t pay anyone a fat fee to do this for you.

Even if you do manage to pull off this fraud, you’re left with an absolutely empty credit file. If you think it’s hard to get loans when you have troubled credit, just try getting credit with no history at all. It could be years before you qualify for decent rates and terms, and by then all the negative marks you were so worried about would have either fallen off your original credit report or become so old that they would hardly affect your score.

Delinquencies, charge-offs, collections, and other negative marks can remain on your credit report for seven years, whether or not the original account is still open; bankruptcies can stay there for ten years.

Even if you’ve had problems with an account, it might still be having a positive influence on your credit score. If it’s one of your older accounts, it could be helping to make your credit history look nice and long—remember, older is better when it comes to credit scoring. If it’s a revolving account, the credit limit is factored into your overall debt utilization ratio. If you close the account, you could make your existing balances look larger while making your credit history look younger than it is.