Vail Daily column: Disputing your credit report can create other disputes
Under the Fair Credit Reporting Act, consumers have a series of rights when disputing information on their credit reports. This includes asking the three major credit bureaus to investigate information reported by a creditor or collection agency that the consumer disagrees with.
There are several levels these disputes can extend. The most common is that the consumer will dispute a late payment or balance owed and the credit bureaus will make an inquiry to verify the information is correct. If it is not correct, then the report is updated to reflect that and that’s generally the end of the matter.
If the consumer still disagrees, then he or she has the right to have the account notated as “consumer disputes” to remain on the report indefinitely. The intent of this right was to allow consumers to give a heads up to future creditors that there is more to the story and the consumer disagrees he was late or owed the amount stated.
This system worked well for many years, until the advent of credit scoring came about and creditors started relying on credit scores in decisions to grant credit. Often, the creditor didn’t look at the full report, not seeing that the consumer might have a legitimate complaint regarding the credit report.
As a result, many consumers were denied credit because a couple of items were killing their scores. To remedy, this the company that created credit scoring, Fair Issac Co., agreed that the fairest thing to do would be give the consumer the benefit of the doubt and exclude any disputed accounts from the credit scoring process.
Of course, somebody has to come along and ruin every good thing. In this case, the culprit was credit repair companies doing things the easy way. These outfits charge enormous fees to clean up a consumer’s credit report. Sometimes they do perform legitimate services, but often when there is no legitimate way to remove negative information from a consumers credit report the credit repair companies figured out that all they had to do was dispute all the negative information permanently from a consumers credit report and his score would zoom up because they knew the scoring models would excluded these items.
This worked for many people, and as mortgage lenders began to rely almost exclusively on credit scores for pricing and approval of mortgages, people with some very bad credit got approved for mortgage loans because they had disputed the negative information on their credit reports.
dispute and loan applications
As the mortgage industry started to get swamped by bad loans several years ago, somebody began to notice that it seemed the people who defaulted might not otherwise have been approved had the disputed accounts been factored into the credit scores.
Fannie Mae and Freddie Mac —who end up owning most of the mortgage paper in the nation — came up with rules that will kick out any loan application that includes the dispute on any credit report. If you have a disputed item on your credit report, then your loan application will be shut down until “dispute” is removed.
The problem many of our clients who have had a legit dispute in the past are seeing is that it is often unclear where the dispute status came from. I have a client who recalls disputing a late payment with Citi. Citi claims it is not reporting the dispute status to the bureau and the bureau swears it is coming from Citi. Both claim they cannot change what they are not reporting and neither can change what the other is reporting. The result is a total standoff and is shutting down my client’s ability to refinance. We have seen half a dozen people come through our office this year who are hitting the same wall. Regardless of how good the file is there are no exceptions granted.
If you think you might have dispute anywhere on any of your three credit bureau reports, then I would urge you to work diligently to get it removed.
Chris Neuswanger is a loan originator at Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage related inquiries from readers. His blog and a collection of his columns may be found at http://www.mtn mortgageguy.com.
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