How dispute wording gets on your credit report; how to remove it; when to remove it and when not to.
In the past decade, the loan requirements regarding consumer disputes have undergone significant changes, becoming more complex and intricate. Unfortunately, many borrowers have suffered the consequences of not being fully aware of these changes. To assist both borrowers and lenders in being better informed, Credit Security Group’s Research Department has prepared this article.
Bob and Mary Baker were thrilled to discover that their credit scores qualified them for the mortgage they needed to purchase their dream home. They met the income requirements and had the necessary down payment. Everything seemed to be going smoothly during the application process until they were blindsided by the news that their credit scores had suddenly dropped by 50 points. As a result, they no longer met the minimum credit score requirements for their mortgage, and their application was denied. The Baker’s experience is not uncommon. So, what exactly went wrong?
Over time, Bob and Mary found themselves in disagreement over certain accounts listed on their credit reports.
One such account was a $35 charge-off from a cable company, which they knew was incorrect as they had paid the final bill in full. They also discovered a thirty-day late payment on their car, which they had evidence to show was only a few days late. According to federal law, consumers have the right to dispute any credit report information they believe to be false or inaccurate.
However, this posed a problem when they applied for a mortgage program that required the removal of certain disputes. Once the disputes were removed, the Bakers’ credit scores fell below the minimum requirement. This brings us to an important point about removing dispute wording:
Removing dispute wording could un-qualify you for the mortgage.
When an account is disputed, it may be masked from consideration in the FICO scoring of your credit file. This masking can potentially increase your FICO score if the disputed account has negative information.
However, it’s important to note that the disputed account may also have a positive score value. In such cases, unmasking the account by removing the dispute wording would increase your FICO score.
In 2016, a couple called the Bakers (not their real name) sought help from Credit Security Group. Their situation was not uncommon. They had been incorrectly advised to remove all dispute wordings from their credit reports, and they followed these instructions diligently.
The only significant delinquency on the Bakers’ credit reports was the charge off from their cable company, and the only late payment update credit report was a thirty-day late. Unfortunately, their scores decreased by over 50 points as a result.
The tragedy lies in our analysis of the mortgage underwriting rules and credit reporting data. It revealed that there was no real necessity to remove dispute wording from the derogatory accounts. For instance, in the case of the 30-day late account, the underlying data (not shown on the credit report) indicated that the account was not disputed in a manner that affected the credit scores. This underlying data is disclosed when their credit file is submitted to automated underwriting, the computer program used by lenders.
The Bakers’ credit report was perfectly fine, and the mortgage loan would have passed underwriting without removing the dispute wording on the two accounts. The Bakers should have been able to proceed with closing on their new home.
Do not follow the advice on standard credit repair sites and blogs to “undispute all credit accounts before applying for a new loan to purchase a home.”
Removing dispute wording on a charged-off account with no balance can severely harm your credit score. No loan program necessitates un-disputed accounts of this nature.
The recommended approach is to remove dispute wording only when it is necessary for your mortgage and you can verify that your score will not fall below the minimum.
We have encountered cases where mortgages were jeopardized due to the wholesale removal of dispute wording without a thorough mortgage scoring analysis of the borrower’s credit file.
Many of these failed mortgages had almost every account disputed by a standard credit repair company. Indiscriminately disputing every derogatory account may lead to temporary deletions, but it results in skewed and inaccurate FICO scoring. This is because disputed accounts are excluded from FICO’s scoring model.
Furthermore, the credit report may indicate that an account is disputed, even when it is not. If your credit score is near the minimum requirement, either disputing accounts or removing disputes from accounts can create problems.
Contact Credit Security Group For Expert Analysis of Dispute Wording in a Credit File – and to Remove It When Necessary.
When Should Dispute Wording Be Removed?
Every consumer has the right to challenge accounts they believe have incorrect information. But why would a consumer want to remove the dispute wording to qualify for a mortgage?
There are two reasons:
1. Mortgage underwriting rules by the lender may require the removal of dispute wording.
2. Removing the dispute wording can potentially improve your credit score.
Requirements for Removing Dispute Wording Vary with the Mortgage Program
Your mortgage program may require the removal of dispute wording, depending on the type of program. The four common mortgage program types are Conventional, FHA, VA, or USDA. Each program has its own underwriting rules that govern factors such as required down payment, maximum loan amount, borrower income requirements, mortgage insurance requirements, and how disputed accounts should be handled.
Most mortgage loan programs allow some dispute wording to remain. For FHA loans, accounts with zero balances and medical accounts do not require the removal of dispute wording. Additionally, if the total balances of disputed accounts are less than $1000, those disputes do not need to be removed.
In certain cases, credit report accounts with dispute wording may not be flagged as disputed when the digital version of your credit report is processed through the loan program’s automated underwriting software. These accounts can be identified using hidden data in the digital composition of a credit report, which provides detailed information about the origin of the dispute.
We utilize this information to collaborate with the lender to identify and resolve disputed accounts that could negatively impact your mortgage. We have also encountered situations where changing the loan program proved to be a better solution for our clients than removing dispute wording.
Removing Dispute Wording Can Increase Your Credit Score
Consider removing dispute wording from an otherwise exempt account if it will improve your FICO scores. However, this task requires experience and expertise as a disputed account can have both positive and negative effects on your score.
Ultimately, it’s the net value that holds significance.
The Basics of Disputed Accounts
Understanding the basics of dispute wording can be helpful. Here are some key points:
Learn about the three major credit bureaus.
Discover how the dispute comments and wording appear.
Find out how to locate disputed accounts.
Identify situations where it is unnecessary to remove dispute wording from an account.
Learn how to avoid damaging your credit scores when removing dispute wording.
How the Dispute Wording get on Your Credit Report
Creditors or credit bureaus such as Experian, Equifax, or TransUnion can add dispute wording to a credit report account. Recognizing that both sources can contribute to dispute wording is crucial in our approach to permanently remove it.
Your creditors, also known as “data furnishers,” provide updated information on your accounts to the credit bureaus every month. Therefore, these terms can be used interchangeably.
Dispute Wording Caused by Contact from You to the Creditor
Creditors place accounts in dispute when they receive a question or complaint directly from the consumer. Most disputes arise from informal communication between the consumer and the creditor, which then appears on the credit report.
If you express disagreement about any particular account or information to a creditor, they are legally obligated to flag the account as disputed. Creditors have faced lawsuits for failing to mark disputed accounts, so they are highly responsive to any communication regarding your account.
Over time, several accounts on your credit report may be marked as disputed. During our in-person Credit Security Analysis interviews with clients, many were surprised to discover any disputed accounts.
However, upon reflection, most of them recalled having conversations with at least one creditor about an account. Even a routine call to inquire about a credit card balance can result in the account being flagged as disputed.
Dispute Wording Caused by Contact from You to a Credit Bureau
When you send a dispute to the credit bureaus, either by letter or through their online dispute processes, they put the accounts in “dispute.”
This is a consistent practice whenever you question or complain about any of the reported data. The credit bureaus then notify the creditor with a short coded notice summarizing your complaint.
The creditor has thirty days to respond to the bureau regarding your disputes. Depending on the nature of your complaint, the bureau’s dispute process could lead the creditor to mark your account as disputed in their system.
Dispute Wording Caused by Some Credit Repair Companies
Hiring a standard credit repair company to assist with your credit may result in them sending aggressive dispute letters to all creditors with derogatory accounts on your credit report. This can lead to an increase in disputed accounts and even prompt creditors to send your account to collections.
Consequently, a new collection account could cause a significant drop of 30 to 60 points in your FICO scores.
To avoid unpredictable outcomes like creating new collection accounts, we employ a cautious approach when using dispute letters. We only utilize them when we can construct a legally and factually accurate argument to request changes or deletions that will genuinely improve our client’s credit scores.
The conventional practice of sending generic dispute letters to all derogatory account creditors often yields unpredictable results and can potentially do more harm than good.
How to Find Disputed Accounts
To identify a disputed account, search for variations of the word “dispute” in the Notes section of the account’s information.
Unfortunately, disputed accounts are not indicated on the credit report. There are no easily noticeable visual cues, such as a red check mark or bold “Disputed” label, to identify these accounts.
Instead of clear markings, creditors use standard phrases in the Notes section to indicate that an account is disputed.
In our analysis of tens of thousands of credit reports, we have observed that every dispute phrase used so far includes the word “dispute” in full or in part. Therefore, if you find this word in the account Notes, you can consider the credit account as “in disputed.”
However, this usually does not provide information about which credit bureaus show the account as disputed or who initiated the dispute. To save time and effort in the removal process, it is helpful to know which bureaus report the account as disputed.
Your lender may be able to provide this information, or you can refer to the dispute wording plan included in our Credit Security Analysis.
Step-by-Step Instructions: How To Remove Dispute Wording
Our experience has been that in many cases, borrowers can successfully remove dispute wording from their credit reports quickly and without much difficulty.
Before starting to remove dispute wording, you need to know the following information for each disputed account:
The account must have the dispute wording removed. Please confirm which credit bureaus show the account as disputed.
Removing the dispute wording will not lower your FICO scores below the minimum required for mortgage qualification.
First: Remove Dispute Wording from the Data Furnisher’s File
Contact the Data Furnisher, the creditor responsible for the account, and inquire about the status of the dispute. If the account is disputed in the Creditor’s system, convey the following to the creditor representative:
1. Explain that you are currently in the process of securing a mortgage and the disputed wording on the account is hindering loan approval.
2. Clarify that you no longer dispute any information associated with the account.
3. Affirm agreement with the balance and prior payment history on the account. Make sure to record the date, time, and the person you spoke with. Refrain from agreeing to any conditions in exchange for removing the dispute wording (refer below).
Follow up by contacting the creditor again after two or three days to confirm that the account is no longer a disputed item in their records.
If a collection agency demands compensation or any other consideration in return for removing the dispute wording, it is important to note that this action violates the law. According to the Fair Debt Collection Practices Act, third-party collectors (not the original creditor) are prohibited from engaging in such behavior.
Second: Remove Dispute Wording at the Credit Bureau Level
To ensure the removal of the dispute letter wording at the bureau level, regardless of the account’s dispute status in the bank statement creditor files, it is important to verify it. The quickest way to do this is by telephone. Here’s a step-by-step guide:
1. Obtain a credit report directly from the bureau. Online reports from other sources will not suffice. You can get a free bureau credit report indefinitely) from the Annual Credit Report (https://www.annualcreditreport.com/index.action). Take your time when accessing this website as four security questions must be answered correctly. Failure to do so will result in the report being sent by mail. On the first page of each report, you will find a file number or report ID, along with a phone number to contact each bureau.
2. Confirm that the account is in dispute, as mentioned earlier.
3. Call the phone number provided on the report. Use the file number or report ID to speak to a representative who can access the account in dispute.
4. Inform them that you no longer dispute the account, agree with the balance and prior payment history, and request the removal of the dispute wording, as it is hindering mortgage loan approval.
Once the Data Furnisher and the bureaus are notified and working on the dispute removal, it is advisable to monitor your credit file. We recommend using FICO Ultimate 3B for this purpose. Additionally, note that the credit reporting agency or agencies will communicate the completion of the process via mail or email if you have provided your email or mailing address during the phone call.
Once the dispute wording is successfully removed from all credit reporting agencies then, you can proceed with your loan process by returning to your lender.
For assistance with dispute wording removal from your credit file, you can contact Credit Security Group (https://creditsecuritygroup.com/). They specialize in credit agencies helping borrowers qualify for home loans and secure the best possible loan terms.
Conclusion
In conclusion, navigating the complexities of credit disputes and their impact on your financial journey requires careful consideration and informed decisions. As we’ve explored in this article, dispute wording on your credit report can have both positive and negative effects, depending on various factors such as the nature of the dispute and the specific mortgage program you’re applying for.
It’s essential to approach the removal of dispute wording with a clear understanding of your unique financial situation and the requirements of your chosen mortgage program.
Removing dispute wording from your credit report can indeed enhance your credit score, but it’s the net value of this action that matters most. Therefore, approach this process with diligence and consider seeking professional assistance when needed.
FAQs
What is the Fair Credit Reporting Act (FCRA)?
The Fair Credit Reporting Act (FCRA) is a federal law that regulates the collection, use, and distribution of consumer credit information. It gives you the right to access your credit reports and dispute any inaccuracies.
What is a credit dispute, and why should I file one?
A credit dispute is a formal request to correct inaccuracies on your credit report. You should file one if you believe some errors may be negatively impacting your credit score or your ability to access credit on favorable terms.
How do credit scoring models affect my credit score?
Credit scoring models are algorithms used to calculate your credit score based on the information in your credit report. Different models may produce slightly different scores, but they all consider factors like your payment history, credit utilization, and length of credit history.
What is the National Consumer Assistance Center (NCAC)?
The National Consumer Assistance Center (NCAC) is a resource provided by the major credit reporting agencies to assist consumers with questions and concerns about their credit reports. You can reach them at 1-800-888-4213.
What are some common credit report errors to watch out for?
Common credit report errors include incorrect personal information (e.g., name, address), accounts that don’t belong to you, late payments or accounts marked as delinquent when they shouldn’t be, and inaccurate account balances.
What should I do if I suspect identity theft on my credit report?
If you suspect identity theft on your credit report, take immediate action. Contact the credit reporting agencies to place a fraud alert on your file, dispute any fraudulent accounts, and report the identity theft to law enforcement.
