The Dispute Dilemma

One in five consumers have some sort of error on their credit reports. While a lot of these are things like a name misspelling or incorrect address, some are more serious and can have a significant impact on credit scores. Disputing these inaccuracies is fairly simple, but what happens when an item is disputed? And by disputing the item, does that in and of itself affect the credit scores?

Inaccuracies such as a misspelled name, wrong address or date of birth have no impact on credit scores as these things are not factored into the scores to begin with. But inaccuracies such as late payments, collections or charged off accounts can have a major impact on scores. Having these corrected is not always easy and can sometimes take months to get amended.

There is a misconception that when an account is disputed it is automatically suppressed from the scoring model and is no longer factored into the scores. This is not necessarily true. According to the credit bureaus, Experian, Trans Union, and Equifax, when an account has a dispute remark, it is sometimes still factored into the scores and sometimes it is not. They even go as far as to say that occasionally part of the account is still factored into the scores but part of it is not. They will not say what part is or is not because that is considered “proprietary information.” Additionally, whether all or part of the account is factored or not can also vary per bureau. For example, say you have a collection account on your credit report that is actually incorrect and should not be there, so you dispute it with all three bureaus. While the dispute is in process you check your credit scores. You notice one bureau’s score is the same as it was before the dispute, one score has jumped up 20 points and the third has jumped up over 100 points! The bureau with the largest jump is not factoring the collection into the credit score at this point because it is in dispute. The bureau with the smaller jump in the score is most likely only factoring in part of the account now and the bureau with no increase is still factoring the entire account into the score.

So, how do you know if the bureaus will stop factoring all or part of the account into the scores? Unfortunately, there is not a way to know this. Each bureau has different criteria, and they are not willing to divulge the parameters they use to make that determination. Those parameters vary by bureau. It can also depend on whether the dispute was initiated with the actual creditor or directly with the bureaus.

To make things even more tricky, a lot of lenders will want all dispute remarks removed from a credit report before the loan can be approved. Some only want remarks removed from accounts with balances, etc., it all depends on the lender. If a collection or late payment is being disputed and the remark is removed, the scores could drop drastically if that account is not being factored into the scores because of the dispute. If the scores drop too low this could have a significant effect on pricing or whether or not the borrower still even qualifies anymore. Unfortunately, there is no way to know ahead of time what the results will be once the remark is removed.

Once a dispute has been initiated it will take 30-45 days to find out the results of the dispute. If the dispute is regarding any derogatory information and the results come back favorably, i.e. the late payment or collection is removed, this could speak very favorably to the credit scores. If they verify the information is correct, then the scores will probably not fluctuate unless the account was suppressed during the dispute process. Once it’s resolved the dispute remark will either come off or a new remark stating “dispute resolved” will appear and the account will not be factored into the scores which could cause the scores to drop.

So, while it is always a good idea to dispute any inaccuracies on a credit report, just be mindful that disputing any account can cause score fluctuations in one direction or the other.