How to Remove Dispute Wording from Your Credit Report
How dispute wording gets on your credit report; how to remove it; when to remove it and when not to.
Over the last decade, loan requirements involving consumer disputes has changed and become more involved and complicated. Ignorance of what is involved has hurt more and more borrowers. Credit Security Group's Research Department offers this article to help borrowers and lenders be better informed.
Bob and Mary Baker were delighted to find out their credit scores qualified for the mortgage they needed to buy their dream home.
They met the income requirement and had the down payment they needed. Navigating successfully through the application paperwork and cruising toward closing, the Bakers were shocked to learn their credit scores were suddenly 50 points lower.
They no longer meet the minimum credit score requirements for their mortgage. Mortgage denied. The Baker’s story is not unusual. So what happened?
Over time, Bob and Mary had disputed certain accounts on their credit reports. A $35 charged-off cable company account that they knew was just wrong because they had paid the final bill in full. A thirty-day late payment on their car that they had documented was only late by a few days. Federal law guarantees all consumers the right to dispute credit report information that they believe is false or inaccurate. So how could this be a problem?
The mortgage program they applied for required that certain disputes be removed. When the disputes were removed, the Bakers’ scores dropped below the minimum required. This is the first important point to know about removing dispute wording:
Removing dispute wording could un-qualify you for the mortgage.
When an account is disputed, it is masked from consideration in the FICO scoring of your credit file. If the disputed account has negative information, the masking may increase your FICO score. But the disputed account may also have a positive score value; and, therefore, unmasking the the account by removing the dispute wording would increase your FICO score.
The Bakers (not their real name) came to Credit Security Group for help in 2016. Their story is one we’ve heard many times before. They had been told, erroneously, that all dispute wording on their credit reports had to be removed. They had dutifully followed instructions and gotten the wording removed. The cable company charge-off was the only serious delinquency on the Bakers’ credit reports. The thirty-day late was the only late payment. Their scores decreased by over 50 points.
The tragedy here is that our analysis of the mortgage underwriting rules and the credit reporting data revealed that there was really no need to remove dispute wording from either of the derogatory accounts. In the case of the 30-day late, the underlying data, not printed on the credit report, showed that the account was not disputed in a manner that kept it out of the credit scores. This underlying data is revealed when their credit file was submitted to automated underwriting – the computer program lenders use. The Bakers credit report was just fine, the mortgage loan would have cleared underwriting without removal of the dispute wording on the two accounts. The Bakers should have been able to proceed to closing 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 could cause severe damage to your score and there is no loan program that requires that type of account to be un-disputed. The best practice is to remove dispute wording only when you have verified that removal is required for your mortgage and you can verify that your score will not be reduced below the minimum.
We have been called in to rescue mortgages that were torpedoed by wholesale removal of dispute wording that was done without a complete mortgage scoring analysis of the borrowers credit file. Many of these failed mortgages had almost every account disputed by a standard credit repair company. Willy-nilly disputing of every derogatory account may result in temporary deletions but they cause skewed, inaccurate FICO scoring results because disputed accounts are excluded from FICO’s scoring model. In addition, the wording on the credit report may appear to say that an account is disputed, and therefore “out of the scores’, when it is in fact it is not.
If your credit score is close to the minimum required, either disputing accounts or removing disputes from accounts can create problems.
When Should Dispute Wording Be Removed?
It is every consumer’s right to dispute accounts they believe contain inaccurate information. So, why would a consumer want to remove the dispute wording to qualify for a mortgage? There are two reasons:
- The Lender’s mortgage underwriting rules require dispute wording to be removed, or
- It will increase your score.
Requirements for Removing Dispute Wording Vary with the Mortgage Program
Your mortgage program may – or may not – require that dispute wording be removed. There are four common mortgage program types: Conventional, FHA, VA, or USDA. Each program has its own set of underwriting rules that govern such things as down payment required, maximum amount of the loan, borrower income requirements, mortgage insurance requirements, and, important for our topic, how disputed accounts have to be dealt with.
Most mortgage loan programs allow at least some dispute wording to remain. For FHA loans, accounts with zero balances and medical accounts do not have to have dispute wording removed. And, if the total of the balances of disputed accounts is less than $1000, those disputes don’t have to be removed.
In some cases, credit report accounts that have dispute wording may not trigger as disputed when the digital version of your credit report is run through the loan program’s automated underwriting software. These accounts can be identified using hidden data in a credit report’s digital composition that encodes a detailed picture of the dispute’s origin. We use this information to work with the lender to identify and cure disputed accounts that could sabotage the mortgage. We've also had many cases where changing the loan program was a much better option for our client than removing dispute wording.
Removing Dispute Wording Can Increase Your Credit Score
You may, however, want to remove dispute wording on an otherwise exempt account when it will increase your FICO scores. This can require quite a bit of experience and expertise. A disputed account can be decreasing your score for one reason and increasing your score for another. It's the net value that matters.
The Basics of Disputed Accounts
It will help you to understand some basics of dispute wording:
- How the dispute wording got there.
- How to find disputed accounts.
- How to know when it is it is not necessary to remove dispute wording from an account.
- How to avoid damage your credit scores when removing dispute wording
How the Dispute Wording Got On Your Credit Report
Dispute wording can be put on a credit report account by the creditor, by one of the credit bureaus: Experian, Equifax, or TransUnion, or by both. Understanding that there are two sources of dispute wording guides our strategy for making sure we remove the dispute wording permanently. Your creditors “furnish” the current data on your accounts to one or more credit bureaus every month. So you will often see creditors referred to “data furnishers”. They are one in the same.
Dispute Wording Caused by Contact from You to the Creditor
Accounts are put in dispute by creditors when they receive a question or complaint by direct contact from the consumer. Most dispute wording gets on your credit report because of routine, informal contact by the consumer to the creditor. When you notify a creditor, in any manner, that you disagree with any of your account information, the creditor must flag the account as disputed to avoid violation of federal law. Creditors have been sued for failing to mark disputed credit report accounts so they are very sensitive to any communication from you about your account.
Over time, quite a few of the accounts on your credit report could end up being marked as disputed. We have conducted thousands of in-person Credit Security Analysis interviews with clients most of whom were surprised to see any disputed accounts at all. But when asked, most of them remember having talked to at least one creditor about an account. A routine call to check on a credit card balance can result in the credit card account be marked as disputed.
Dispute Wording Caused by Contact from You to a Credit Bureau
Accounts are put in “dispute” by the credit bureaus when they receive a dispute from you either by letter or by using the bureaus’ on-line dispute processes. The credit bureaus are pretty consistent about putting the account in dispute when you question or complain about any of the data being reported on the account. When you dispute on your credit report accounts with a credit bureau, they send a short coded notice to the creditor that communicates a short phrase that summarizes the nature of your complaint. The creditor has thirty days to respond to the bureau with their response to your disputes. Depending on the nature of your complaint, the bureau dispute could prompt the creditor to mark your account as disputed in their system.
Dispute Wording Caused by Some Credit Repair Companies
If you have hired a standard type credit repair company to help you with your credit, there's a good chance they have sent a nasty letter on your behalf to every creditor that has a derogatory account on your credit report. These letters have the obvious effect of a large increase in disputed accounts.
These dispute letters can also prompt the creditor to send your account to collections because he interprets the credit repair letter to mean that you will never make any effort to resolve the account. A new collection account will decrease your FICO scores by 30 to 60 points.
Causing a new collection account is just one of the unpredictable results of shotgun disputing of accounts. That is why we use dispute letters sparingly: only when we can construct a legally and factually correct argument that the account data should be changed or the account should be deleted, and only when we know that the change or deletion we are requesting will increase our client’s scores. The standard credit repair process of sending random, boiler plate dispute letter to every derogatory account creditor has unpredictable results and are just as likely to cause harm as make any improvement.
How to Find Disputed Accounts
Look for some form of the word “dispute” in the Notes portion of the account's information to identify a disputed account. Unfortunately, disputed accounts are not clearly marked on the credit report. There is no easy-to-see red check mark or the word “Disputed” in bold to identify that an account is disputed.
Rather than clearly mark disputed accounts, Creditors use sets of standard phrases in the Notes section of each account to indicate that the account is disputed. In analyzing tens of thousand of credit reports, we have seen that every dispute phrase used so far has included the word “dispute” in full or part. So if you find this somewhere in the account Notes, you can regard the account as being “in disputed.”
Usually, this provides little or no information about which credit bureaus show the account as disputed or who put the dispute wording on the account.
Knowing which bureaus show an account as disputed will save you time and effort in the removal process. You lender may be able to find out which bureaus are reporting which accounts. (The dispute wording plan included in our Credit Security Analysis does have this information for your use.)
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:
- That the account does, for sure, does have to have dispute wording removed.
- Which credit bureaus show the account as disputed.
- That removing the dispute wording will not lower your FICO scores below the minimum you need to qualify for the mortgage.
First: Remove Dispute Wording from the Data Furnisher’s File
Call the Data Furnisher, the creditor for the account, and ask them if your account is in dispute in their system. If your account is disputed in the Creditor’s system, tell the creditor representative:
- You are in the process of getting a mortgage and the dispute wording on this account is preventing your loan approval.
- You no longer dispute any information on the account.
- You agree with the balance and the prior paying history on the account.
Make a note of the date, time and the person you talked to. Do not agree to do anything in return for their removal of the dispute wording (see below).
Follow up by calling the creditor again after two or three days to verify that the account is no longer in dispute in their files.
If a Collection Agency Demands Something in Return for Removing Dispute Wording
We have experienced collection agencies asking for payment or some other consideration for removing dispute wording. This triggers our procedure for legal action. You should know that a third party collector (not the original creditor on the account) is prohibited from this by law (Fair Debt Collection Practices Act ).
Second: Remove Dispute Wording at the Credit Bureau Level
Regardless of the account’s dispute status in the creditor files, you should verify that dispute wording in removed at the bureau level. The fastest way to do this is by telephone.
- Obtain a credit report directly from that bureau. Other online reports will not work. You can get these free bureau reports from Annual Credit Report. When going here, you have to take your time, there are four security questions that you cannot miss, or the report is by mail only. On the first page of each report a file number or report ID, along with a phone number to call each bureau.
- Make sure the account is in dispute (see above).
- Call the phone number on the report. The file number or report ID will get you to a human so they can pull up the account in dispute.
- Tell them you no longer dispute the account and agree with the balance and prior paying history, furthermore need the dispute wording removed as it is preventing mortgage loan approval.
Now that both the Data Furnisher and the bureaus are on notice and working on your dispute removal, you will want to monitor your credit file. For this we recommend the FICO Ultimate 3B.
Also note that when each reporting agency completes the process for you they will communicate via mail, or email if you gave them your email address in the phone call.
Once the dispute wording is removed from all reporting agencies, it is time to go back to your lender to continue with your loan process.