Find a mistake on your credit report? One in five (21%) consumers who have seen their credit reports said they found wrong information on their reports, according to a Credit.com survey of credit report awareness. The common advice in this situation is, “dispute it.” But what happens to your credit reports and credit scores when you do?
We’re not talking here about the mechanics of the dispute process, but instead what happens to your credit reports and scores when you challenge items in your credit reports.
There are two ways to dispute a mistake on your credit report. The first, is through the credit reporting agency that is reporting the wrong information, and the second is to go directly to the furnisher that supplied that information to the credit bureau.
Disputes With Credit Bureaus
Both Experian and TransUnion said they do not add “disputed” to information that a consumer disputes directly with them. “You won’t necessarily see any indicator on the report itself that says it is in dispute,” says Rod Griffin, director of public education for Experian. And TransUnion Public Relations Director David Blumberg said in an email, “No, the item is not flagged by TransUnion and lenders do not see that it is currently being disputed.” On Equifax reports, the item will be “noted as ‘Consumer Disputes — Reinvestigation in Process” says Meredith Griffanti, senior director of public relations for Equifax, noting in her email, “If the consumer applies for credit during this time, the potential creditor will see this comment.”
Disputes With Creditors
On the other hand, if you dispute an item with the “furnisher” — the company reporting the information to the bureaus, such as a credit card company or auto lender, for example — it will very likely be noted as disputed. Here’s each major credit reporting agency’s policy:
- Equifax: “It is a part of the statute of the FCRA that an unresolved dispute be noted by the creditor as ‘consumer disputes this account information’ or other similar language,” says Griffanti. “Lenders that request the report will see this information.”
- Experian: “The lender may add a statement that notes it is in dispute and then Experian will add a notation noting that it is in dispute,” says Griffin.
- TransUnion: “A furnisher may sometimes place an ‘account in dispute’ remark on the file, which can be seen by lenders,” Blumberg says.
Why It Matters
Why is it important whether an account is listed as disputed or not? Because that dispute could have an effect on your credit scores. While an account is documented as disputed, “it is temporarily excluded from consideration by the VantageScore model,” explains Jeff Richardson, spokesman with VantageScore. Similarly, “the FICO® Score algorithm excludes account activity that is in dispute,” says FICO spokesman Jeffrey Scott. But with FICO, the entire account won’t be bypassed — just the disputed information. “The dispute doesn’t include the age, type or other non-controversial aspects,” Scott says. “It includes things directly impacted by the dispute — e.g., account balance, late payment.”
There are times when this could be a plus. For example, Richardson says, “If there was a missed payment on the disputed account, the consumer’s credit score can increase because the missed payment will be ignored.”
Unfortunately, the dispute process has sometimes been abused. There have been situations where consumers dispute an item that is negative but accurate, then quickly apply for credit, hoping the application will be approved while that information is under dispute and not recognized by the credit scoring model. If you’re thinking of trying that approach, be careful: It could backfire.
The Downside of Disputes
It is important to recognize there can be a downside to disputing an item while you are trying to get a loan. “A consumer could also possibly see a decline in his or her score because they would also not receive the positive impact of the account’s age, history and credit availability, on-time payments,” Richardson points out. And challenging a mistake while you are trying to get a home loan can hold up your loan: Lenders often will not close a mortgage until the dispute notation is removed.
The good news it that most disputes are processed quickly — in less than two weeks says Griffin — and once the investigation is complete, the item should no longer be listed as disputed. If it’s not, the consumer can request the “under dispute” notation be removed. “If the credit report indicates the dispute has been resolved and/or closed, the account activity will be treated just like all other account activity,” Scott says.
Of course, in order to dispute a mistake on your credit reports, you have to know there is one. So be sure to order a copy of your credit reports from all three major credit reporting agencies (since they all may have slightly different information). You can get your credit reports for free once a year at AnnualCreditReport.com and you can find out how the information they contain affects your credit by checking your credit scores. You can get your credit scores for free on Credit.com, updated monthly. If you discover your credit report contains erroneous information, dispute it, but give yourself plenty of time to get the item(s) corrected and the dispute resolved before you apply for a mortgage, car loan or credit card.
More on Credit Reports & Credit Scores:
- How to Get Your Free Annual Credit Report
- How Do I Dispute an Error on My Credit Report?
- How Credit Impacts Your Day-to-Day Life