Mortgages

How a Credit Report Dispute Could Stop You From Buying a Home

Advertiser Disclosure Comments 34 Comments

Have you ever had a disagreement with a creditor? If yes, you may want to think about how disputing that account could impact your plans to buy a home. You may not be able to get a mortgage if you have open disputed credit accounts. Here’s how to make sure you can seal the deal.

Borrowers may dispute items on their credit report if they disagree with the accuracy. Disputes regarding balance, rate, payments are most common.

These include:

  • Charge-off accounts (charge-off shows a due debt, but no payment due)
  • Collection accounts
  • Accounts with late payments in the past two years
  • Can also include any other credit account with “Dispute Status” reporting on the credit report

Consumers dispute accounts to improve their credit score, clean up their credit history or to improve their credit picture in most cases. Disputing an account is a measurable action to take, especially when the issue is due to theft or fraud. In those circumstances, a disputed credit account that was fraudulently opened would have no negative bearing with the mortgage lender.

But what if it is your account?

What if you disputed an account that is yours because you had a genuine disagreement with your creditor?  Or if you wanted to see if you could remove derogatory items?

A Red Flag When Home Buying

It may seem unfair if you feel you have a genuine dispute with a creditor on an account that is yours. But the truth is, when it comes to getting a mortgage, lenders don’t like to see disputed accounts because it shows a potential for future liabilities that may impact your ability to repay the mortgage. Therefore, disputed accounts must be removed from the dispute status before you can seal the deal with the home sale.

So if you do have any disputed accounts on your credit report, be prepared by getting your paperwork together. The lender will need a letter of explanation for the disputed accounts and documentation to support the claim of the dispute.

If you have credit accounts in dispute, you may also have to pay more cash in order to close on the house. If the sum total of all disputed credit accounts is equal to or greater than $1,000, you’ll have to pay the debt down to zero in order to remove the dispute status. For example, if a consumer has $5,000 in disputed credit accounts, they can settle with the creditor for an agreed-on amount as long as the creditor reports it as “no longer reported as disputed.” This action will satisfy the mortgage lender in issuing your loan.

If the dispute accounts total less than $1,000, the lender will require the buyer to contact the creditor to change the reporting status from “account in dispute” to “no longer reported as disputed.”

Homebuyer Credit Tips

  • Undispute all credit accounts before applying for a new loan to purchase a home.
  • If you have not found a home yet, before home searching, see if you have any accounts that need to be zeroed out. Your lender can help you go through your most recent copy of your credit report.
  • If possible, avoid disputing any credit accounts (other than for theft or fraud).

[Editor’s Note: If you’re in the process of applying for a home loan, checking your credit scores is an important part of the process. You can use a free tool like the Credit Report Card to get two free credit scores that are updated monthly.]

More on Mortgages and Home Buying:

 Image: Tetra Images

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

  • http://www.credit.com/ Credit.com Credit Experts

    Are you sure you’re getting good advice? Any dispute on your credit report could potentially hold up your mortgage.

  • Charlie M

    I am currently looking for a a house and when my credit score was ran an open account in collection came up. i called the collection office and they said it was a mistake and that it was under the wrong SS #. i was told that if i dispute this my credit score could go up but it can also hurt me. i asked the person from the collection office how long it takes and she told me its pretty quick process specially if they made a mistake. can this hurt me when trying to get a mortgage loan? what should i do?

    • ScottSheldonLoans

      You should it possible that the creditor to remove the liability completely because it is not yours. Disputing the account, if your lender is working with automated underwriting set forth by Fannie Mae and Freddie Mac will be an issue and will hold up a loan process.

  • ScottSheldonLoans

    Medical disputes for the purposes of getting a mortgage are determined by the automated underwriting the lender uses. If the automated underwrite requires these accounts to be zero balanced out then yes they would have to be cleared prior to closing escrow.Good Luck!

  • http://www.Credit.com/ Gerri Detweiler

    Well hopefully they know what they are doing!

  • KinSC

    Is it okay to open a dispute between the time that the loan has been approved and when you close? I have an erroneous late payment that was in dispute, but I decided to cut my losses and withdraw the dispute so that I could submit the loan application, which came back as approved. It’s a month before closing now, if I reopen the dispute, will that delay the closing or will it be irrelevant since the lender already ran the credit and the late payment was reported at the time that the loan was approved?

    • http://www.credit.com/ Credit.com Credit Experts

      It could potentially delay closing. Credit is checked again just before closing.

    • ScottSheldonLoans

      Yes, remove from the dispute status close on the loan then do any dispute related items “after the fact.”

  • Jason Taylor

    Will a remark about a credit dispute that I have already had removed from my report affect me getting approved for a loan?

    • http://www.Credit.com/ Gerri Detweiler

      Possibly. We have heard of consumers who ran into problems because of a statement that didn’t correspond with the information in the report. It has usually been in the context of a mortgage where there is greater scrutiny.

  • http://www.Credit.com/ Gerri Detweiler

    Maybe, maybe not. This recent article discusses disputes: What Really Happens When You Dispute Something on Your Credit Report?

    • cathie romero

      That didn’t answer the question. She said if you “undispute”.

      • http://www.Credit.com/ Gerri Detweiler

        Cathie – in that article I talk about how a dispute may or may not affect your scores. Whether removing the dispute will affect your scores depends on whether it is in the first place, and that isn’t always clear.

  • Jean

    How do I stop a dispute once I already submitted it?

    • http://www.Credit.com/ Gerri Detweiler

      Here is an article on that topic: How Do I Get a Dispute Off My Credit Reports?

    • ScottSheldonLoans

      Call you are servicer of the credit account in dispute and request that they take it out of dispute status.

  • cathie romero

    IT IS ALMOST IMPOSSIBLE TO REMOVE A DISPUTE

    • ScottSheldonLoans

      Cathie,

      All you do is call the creditor and remove the dispute status in conjunction with a mortgage application.

  • dustin

    I have 2 student loans (opened in 2004) that started with Direct loans and then Direct loans closed so the loans were transferred to U.S. Dept. of Edu. in 2012. Direct loans only reported to Transunion. and reported my Date of first Delinquency as may 2008
    The issue is that when the loans were transferred, U.S. Dept. of edu. they reaged the date of first delinquency to nov. 2011 (1year before they got the loans).
    I’ve disputed this twice and of course u.s. dept. of edu just verifies the info they have.
    I’ve called them and they said they Established the DOFD to 1 year b4 they got the loans b/c the loans had to have been in delinquency when they got them.
    How do I get this fixed? Transunion has removed the loans b/c they are past the 7 years threshold but Equifax and transunion won’t b/c U.S. Dept. of Edu just verifies the info they have.

    The loans were never brought current after the first DOFD in 2008

    • http://www.Credit.com/ Gerri Detweiler

      You file a complaint with the CFPB. Be as clear and specific as you can in your complaint–it’s somewhat confusing as written here. Let us know what happens. The other alternative is to talk with a consumer law attorney to find out if you have a case for credit damage.

  • http://www.Credit.com/ Gerri Detweiler

    The one with the company that is out of business shold be easy. Dispute it with the credit reporting agencies. If it is not confirmed (and how can it be?) it must be removed. You can also dispute the one for the company that doesn’t return your calls. Again, if they don’t confirm it, then it must be removed. Keep records of your disputes. For the last one, that is trickier but it sounds like the dates are wrong. Dispute it, If it is confirmed, you may want to file a complaint with the CFPB or get an attorney involved.

    Please read: A Step-By-Step Guide to Disputing Credit Report Mistakes

  • Fred

    I have a mortgage loan which I’ve been trying to get modified but the bank was not cooperating so I hired an attorney and he discovered that the loan was not properly sold from one institution to another therefore it was not valid. The lender decides to write off the loan and its is marked as charged off on 1 of my 3 credit reports – the others simply say unknown. How can i get this removed from my report (if at all)? – btw, they discovered that they could not foreclose because they didn’t properly own the mortgage (or some technicality)..

    • http://www.Credit.com/ Gerri Detweiler

      Have you tried disputing them with the credit reporting agencies? That would be my first suggestion. If that doesn’t work you’ll need to either try to get a consumer law attorney involved or file a complaint with the CFPB.

    • ScottSheldonLoans

      I agree with Geri 100% on this. I would’ve told you the exact same thing.

  • The Engineer

    I am trying to close on a VA loan. We have hjt issue after issue. This latest issue is collection that I have totaling over $5k in “dispute” status. They said I need to take it out of dispute status. My credit score was already on the low side. They are hoping once the dispute status is removed from that collection account it will not drop my score below the required credit limit. I have (3) accounts in “dispute” one for $344, another disputing late payments on a credit card, and of course the main one being the $5k collection. How can I minimize the affect of taking these items out of dispute? I have about 24 points give of take to play with. Please best advice!

    • http://www.Credit.com/ Gerri Detweiler

      I’m not sure how to advise you. There is a risk that if you take it out of dispute your credit scores will go down. Is the information accurate? If it’s not then you may need to get a consumer law attorney involved. If it’s accurate, though, then there is a chance it will affect your ability to quality for this loan.

  • Derek Tutt

    Question….I have three accounts on my credit report that were settled for less than the balance. In the comments it states that it was settled but also state that these accounts are in dispute. I was told that with these accounts being in dispute it is harming my score, is this true?

  • Sam

    We wanted to start the process for buying our first home. First thing I did was to check both our credit reports (annualcreditreport.com) to make sure there is no incorrect data. Found 3 old collection items on my wife’s report that we believe are more than 7 years old. Thinking that I am doing the wright thing, I disputed all three of them that they are too old to be included. Next week we met with the credit union mortgage specialist to get a pre-approval letter, she pulled our credit reports and underwriter said that these disputes has to be removed or the items must be resolved with the creditors before we can move forward. I have been looking for advice, but I am getting different opinions: 1- Wait for the dispute to resolve (the down side is I do not know how long it will take, and if they pull my credit report again in 60 days or so, it will be too many hard hits that will affect me negatively getting the mortgage loan. 2- pay it off (some said it will be still on your credit report, it will not be deleted. 3- ask for a pay-for-delete (I was told that this can work with small collection agencies, but not big banks. I need you help for the best action to take, I do not want to repeat my mistake, thinking that I am fixing things, but I am actually making them worse… Thanks in advance.

    • http://www.Credit.com/ Gerri Detweiler

      There is no simple answer to your question. If you believe they are too old and you’re not under the gun to buy your home then I’d say find out how the dispute process goes. (You should have an answer in 30 days or less – that’s the time limit for responding to a dispute in most cases.) If you pay them off that doesn’t do anything for your score but might resolve the dispute problem–but it will still take time for them to update so I don’t see the advantage. I’d reserve the pay for delete option for the situation where you find out that you do owe them and they aren’t too old to be reported. Of course if you’ve found a home and need to close asap it’s a different story…

  • Munchie

    Gerri…
    I reported a credit card lost or stolen and my creditor reports the account closed and issued another card number for the account. Now, the new account reflects all of the information fromt he closed account which is expected, however, the closed account still shows the derogatory late pays from 2012/2013. Does this mean that my credit score is impacted twice, once for the new account and once for the closed account?

    • http://www.Credit.com/ Gerri Detweiler

      It’s possible that it is. It really depends on how it’s reported. You may want to dispute the closed account as a duplicate with the credit reporting agencies and see what happens. Please read: Will a Lost or Stolen Credit Card Hurt Your Credit Scores?

  • Nette

    I am in the process of completing the process for a home loan. I was told that there is an credit card account in dispute on my report. When I contacted all three agencies to see when it was disputed and why, they did not have any specific information for me. I requested the dispute be removed and all agencies have done so. I am not sure though what to write as an explanation on why the dispute was filed. I don’t remember. Any suggestions?

    • http://www.Credit.com/ Gerri Detweiler

      I have no idea…I would suggest asking your loan officer.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.