What Happens When You Dispute Accounts On Your Credit Report


When mistakes show up on your credit reports, federal law gives you the right to request that the credit reporting agencies correct them. This request is a credit “dispute,” and the Fair Credit Reporting Act (FCRA) is the federal statute that confers the right for you to file one, or more such disputes. But, does disputing accounts drop your credit score?

Despite the need for all of us to have accurate credit reports, there are some who worry that filing a dispute will drop their credit scores. This is, thankfully, nothing more than a credit myth. Disputing accounts on your credit reports will not drop your credit scores. In fact, filing disputes is more likely to have the opposite effect, at least in the short term.

Credit Disputes Behind the Scenes


Just in case you’re unfamiliar with the dispute process, here is how it works.

·      You request a copy of your credit reports and review them. You can claim free credit reports every week through April 2022 at www.annualcreditreport.com.

·      During your review you notice information you believe the be inaccurate. Naturally you would like to have it corrected.

·      You send a formal dispute to one or more of the credit reporting agencies about the item you believe is wrong.

·      The FCRA requires the credit bureaus to investigate your claims.

·      The investigation process usually takes no more than a couple of weeks but the FCRA allows for as long as 45 days, in certain circumstances.

·      At the end of the investigation, the credit bureaus provide you with the results of their investigations. This will let you know if the disputed item has been removed, updated, or will remain unchanged.

During the actual investigation, the credit bureau will commonly mark the account as “Consumer Disputes, Investigation in Progress” on your credit report. This is called a dispute notation or dispute code. In order to add this notation to your credit report, a credit bureau uses a special type of code called a Compliance Condition Code.

There are many Compliance Condition Codes, but the one that indicates that a credit bureau is actively investigating an account you’ve disputed is known as the “XB” code. If someone checks your credit report while the XB code is associated with an account, a notation along the lines of “Consumer disputes, Investigation in Progress” will appear with it. This lets the world know that you disagree with some aspect of the account and it is actively under investigation.


How Disputes Impact Credit Scores


When the XB code is associated with an account (collection account or trade line), credit scoring models like FICO and VantageScore consider the item differently. These scoring models ignore the payment history and debt-related metrics associated with the account. The reason for this different treatment is so that a potentially invalid item doesn’t lower your credit score in an unfair manner.

Since FICO and VantageScore ignore certain aspects of an account while it’s in dispute, you’ll often see a temporary credit score boost during the investigation process. However, once the investigation ends and the XB code comes off your credit report any score protection will end, especially if the item was derogatory in nature. Unless your dispute concludes with the removal of negative information from your credit report, your credit score will typically revert to its pre-dispute number.

NOTE: This credit score boost associated with the XB code has been commonly known for decades. And, it is not an effective short-term credit repair strategy because lenders have long caught on to any illicit efforts to just dispute everything negative on your credit reports just so you can go out and get a loan with your temporarily higher score. Many lenders will not allow for the processing of an application which the XB code is on your credit reports.

Final Thoughts


There’s nothing wrong with disputing incorrect information on your credit reports before you apply for financing. In fact, that’s part of the reason the FCRA exists. But you should wait for the dispute process to conclude before you start filling out applications for financing. Otherwise, you could potentially run into loan qualification challenges.

Given that the dispute process is now often completed within just a few days, there’s really no reason to ever find yourself in a scenario where you have limited time between checking your credit reports and applying for credit. Most of the traditional advice regarding checking credit reports has been along the lines of, “check your reports three to six months before you apply in case there are any surprises.” At one time three to six months may have made sense, but that isn’t the current reality. If you check your reports even a month to 45 days in advance, you should be just fine.

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