Credit scores and credit reports are a confusing topic. There’s a lot of information out there. It is hard to separate fact from fiction. At the same time, credit is really important. It’s thus important that you have the correct knowledge about how credit reports and credit scores work.
In our interactions with consumers, and on social media, we’ve noticed quite a bit of confusion about what happens when you dispute information with credit reporting agencies like Experian, Equifax and TransUnion. As credit attorneys, we felt it was important to set the record straight.
Myth #1: Credit Disputes Cause Negative Credit Items To Remain On Your Credit Reports For Longer
Negative credit items, like collections, auto repossessions and credit card charge offs, remain on your credit reports for 7 to 7.5 years after you first missed a payment on the debt. What does this mean?
Let’s say that in January of 2017, you missed a payment on your credit card. In the subsequent months, you were still unable to make payments on the card. The card was closed, and written off by the credit card company.
How long does this charged off credit card remain on your credit reports? Typically, a charged off account can stay on your credit reports for up to 7.5 years after you first stopped paying on the debt. The date you stopped paying on the debt is known as the date of first delinquency.
This means that for an account which you ceased payment on in January 2017, the account will remain on your credit reports until around July 2024.
Now, what if you dispute the account with the credit reporting agencies? Perhaps you believe that the account is being reported in an innacurate or incomplete way. Will disputing the accounts cause it to remain on your credit reports for longer?
The answer is no. Filing a credit dispute, regardless of it’s outcome, does not reset the clock for when an account will be removed from your credit reports. You can dispute an account as you please, and it won’t remain on your credit reports for any longer than it would have otherwise.
Myth #2: Disputing Credit Issues Online Is An Effective Strategy
You can dispute credit report errors with Experian, Equifax and TransUnion online. The same is true of Credit Karma and other credit monitoring sites. At the click of a button, you can challenge anything innacurate or incomplete on your credit reports. The process takes just a few minutes. What’s not to like about such a convenient approach?
First, online disputes provide you with a very limited number of options. When you file your dispute, you’ll typically be provided with just a few reasons for the dispute. These include the account not being yours, or that it was not late.
The thing is, these are not the only reasons you might dispute an account. Accounts on credit reports are supposed to be complete and accurate.
If information is missing from an account, such as the full payment history, then how can we say that it is complete? Perhaps the account does belong to you, and you were late – but it is still not being reported in a 100% accurate manner.
Yet, online disputing often does not provide for a variety of dispute reasons. You are offered with a limited number of options. This greatly restricts your ability to construct an effective dispute, and ultimately correct issues on credit reports.
Online disputes don’t always let you attach documents to your dispute. Let’s say you were marked late on a credit card account, and have proof that you paid on time. An online dispute portal will often not allow you to attach documents that would make your dispute more effective.
Online disputes also offer less of a paper trail. If you dispute with a credit agency via certified mail, you have more of a paper trail. You can prove when the letter was sent to the credit agencies, and when it was recieved. This means that if a credit agency ignores your dispute, you might have legal recourse.
With online disputes, perhaps you’ll recieve an email confirmation when you file a dispute. However, this isn’t always the case. This makes it tougher to assert your rights.
Sometimes, your legal rights might be restricted by disputing online. The Fair Credit Reporting Act (known as the FCRA) is the federal law which governs credit reporting.
The FCRA says that if a credit reporting agency does not properly investigate a credit dispute, and a damaging credit report error remains, you may have grounds to sue the credit reporting agencies. This is a powerful solution for consumers who are unable to correct errors on their credit reports.
Here’s the problem: Disputing online can restrict your rights to sue a credit reporting agency. Credit reporting agencies want to reduce their legal exposure. As a result, they might require you to accept binding arbitration, as a condition of disputing credit errors online.
This is basically a form of private court. While it has it’s merits, arbitration is less favorable for you, as a consumer exercising your rights.
We suggest reviewing the terms and conditions for Equifax, Experian and TransUnion, to see whether arbitration is required if you dispute online. At the moment, Equifax has explicitly removed arbitration requirements, but it’s not clear that Experian and TransUnion have. As a result, an online credit dispute could force you into arbitration.
Myth#3: Credit Disputes Reduce Your Credit Score
Filing a credit dispute, in itself, usually has no impact on your credit score. The dispute does not hurt or help your credit score.
Now, if a negative credit item – like a collection account – is removed, that can boost your credit score. However, if the item isn’t deleted, you won’t be penalized for having disputed it unsuccessfully.
It’s also important to understand how mortgage lenders treat credit disputes. Under the versions of FICO scores used for mortgages, disputed items are typically excluded from your credit score. Thus, your score might appear artificially inflated, if these disputed items are negative (and are not being counted towards your overall score).
For these reasons, many mortgage lenders will ask you to remove dispute comments (i.e. cancel your dispute) before they can approve you for a mortgage. Since removing a dispute from your credit reports can take some time, you should take care of this well in advance of applying for a mortgage.
We don’t suggest disputing a credit item if you don’t have a valid reason for the dispute. However, even if you do, and the dispute fails, you’re not going to be penalized.
The Final Word
If you have negative innacurate items on your credit reports, disputing these items is the first step to having them corrected or removed. If not removed, you may pursue legal action.
In disputing information on your credit reports, make sure that you follow the suggestions we’ve shared above. Understanding your rights, and what works and what doesn’t, is absolutely critical.
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