Disputed Credit Items Must Be Cleared up Before Loan Approval

The latest threat to stopping your next closing is the word “dispute” showing up on your buyer’s credit report.  Disputed accounts are not new but the emphasis that mortgage investors are placing on them is.  In 2011, there are more mechanisms in place that enable a consumer or creditor to file a dispute with one or all of the credit bureaus.  As a result, the word “dispute” is showing up on more and more credit reports, and many investors are now requiring all disputes to be settled before the loan is approved.  Unfortunately, clearing up a disputed item can take a lot of time and effort.  So, what should a buyer do when a “dispute” shows up on their credit report?  I suggest that they follow the following five steps:

Step 1: Know what each of the three credit bureaus are reporting.  This means reviewing credit reports from Equifax, Experian, and TransUnion.  A consumer can obtain a free copy of their report once a year from an online service such as annualcreditreport.com.  Of course, a mortgage credit report includes reports from all of the bureaus into one easy to read report.  Be aware that the bureaus do not report all of the same information, so it is imperative to review reports from all three bureaus.

Step 2: Contact the creditor to discuss the disputed item.  The disputed item is not as much of a priority to the creditor as it is to the consumer.  Thus, it can be hard to get the creditor’s full cooperation.  If the consumer is the one who initiated the dispute, then it is much easier to resolve the dispute.  If the consumer no longer wishes to dispute the account, they can simply write a letter to the credit bureau asking for the dispute to be removed.  The letter must be signed and dated and refer to both the specific disputed account as well as the account number.

Step 3: Get a letter in writing confirming that the item is no longer disputed.  The credit bureaus have different requirements for how the letter must read.  Equifax is the strictest and requires that the letter be specifically worded as follows: “We have instructed the bureaus to delete the account in dispute notation.”  The letter has to be in past tense and it has to state “account in dispute.”  The letter also has to be dated within 30 days, on company letter head, reference at least 4 digits of the account number, and include the borrower’s name.  Getting a letter that fits these exact specifications can be easier said than done.  It might entail making several calls or even demanding to speak with a senior manager.  Through perseverance, such a letter can be normally obtained though.   

Step 4: Send the letter to each of the three credit bureaus.  It is critical to not stop at Step 3 but to also get the letter in writing and send it to each of the credit bureaus.  Be aware that the bureaus are allowed 30 days to resolve direct consumer disputes, so again this process can drag out.   

Step 5: Follow up and make sure the dispute removed.  The credit reporting industry is sloppy and following up to make sure they are now reporting accurately is an important step.   

In summary, it can take some time to complete all five of these steps.  If a mortgage closing is at stake, technology known as Rapid Rescore is in place that can speed up Steps 4 and 5 into a matter of a few days.  With a letter from the creditor, the cost of this rescore is $30 per account, per bureau, per person.  Without the letter, the bureaus can sometimes still verify this information verbally over the phone, but the cost increases to $50 per trade, per bureau, per person.  The rescore can be expensive but it might be the only way to get your deal closed by next week!

February 28, 2011 by · 2 Comments

About James

James A. Williamson is currently the Sr VP of Sales Development for Shelter Lending Services (formerly Fairfield Mortgage). James joined Shelter in 1994 and was the company's top Loan Officer in GA for 20 straight years helping over 2500 families finance their homes. James now oversees an incredible group of Loan Officers in Atlanta while further building Shelter's Atlanta business.


2 Responses to “Disputed Credit Items Must Be Cleared up Before Loan Approval”
  1. AMY says:

    What if it is a case of identity theft, to remove or undispute it means it is now an owed account. I do not want to undispute it, I want the credit card company to take it off. I feel like I am stuck in never never land with no one to help.

  2. James Williamson says:

    You make a great point. Identify theft cases are indeed an exception to the rule. If you have not already, I would involve a credit repair attorney to help you navigate this unique situation and write a letter to the credit card company.

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