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Disputing items on your credit report
After you have reviewed your credit report and made a note of the incorrect items, such as a paid
collection still being report as unpaid, it is time to file an online dispute with each bureau reporting
the incorrect item. You can mail letters to the bureaus but it will usually take much longer to update
the reports and scores. You will have to pay for an individual credit report with each bureau to get a
report number which is necessary to file an online dispute. Also, you will need the full company
name of the disputed item, account number of the disputed item, and the reason for your dispute
(such as, it is not your account, you have paid the account, etc.) The bureaus must update the
disputed item within 30 days and if the creditor misses the deadline to verify the information, the
bureaus must remove the disputed item even if the negative information is correct. Legally, you can
dispute items on your credit report every 30 days as many times as you wish. If you are lucky,
sooner or later your creditor may miss the deadline and the negative information disappears. You
should know your rights and you may want to review the Fair Credit Reporting Act. Finally, the jury is
out on credit repair agencies and I believe there are no guarantees that they will improve your credit
scores. You may just want to do it yourself and save yourself hundreds possibly thousands of
dollars.
Paying off Collections, Judgments, and Liens
In general, you should try to pay off all bad debt 6 months to 1 year prior to purchasing a home so
your credit scores will have a chance to go up. Usually, you can negotiate with creditors to settle for
50%-60% of the balance owed on a collection, judgment, or lien account. If you do reach a
settlement with the creditor, you should demand that they send you a letter that they will report to
the bureaus that your account is paid, current, and never late. Otherwise, the account will still show
up as bad credit and your credit score will not improve right away. If you are about to apply for a
home loan, it may be better not to pay off this account if the creditor has not reported the item to the
bureaus for a long time.
The clock starts all over again once you pay off the account and the credit item will show up as
recent bad credit and the credit score will take a big hit. Most mortgage lenders will require that
collections, judgments, and liens be paid off prior to closing your home loan, but they will only run a
credit report with scores once at application and will update the negative credit items with a
supplement report. Sometimes you may want to let sleeping dogs lie if the scores are good
enough to qualify for a home loan without the bad credit being paid off just prior to mortgage
application. For example, many years ago I had a student loan which became 120+ days
delinquent and the university stopped reporting the account to the bureaus 5 years prior to
application for my first home loan. I made payment arrangements with them and they verbally
agreed not to report me late to the bureaus. I decided to pay off this account right before applying
for my loan, and my credit scores tanked 20-40 points because the reports showed that the
account was paid off but I was late for the last 5 years. I was really upset and I called the university
and reminded them that they were not suppose to report me late again, but said they had no written
record of the agreement and that I should have paid my payments on time. Now, I was sweating
and scrambling and I had to provide letters of explanation and documentation, which included the
kitchen sink, to get the underwriter to approve the loan. I thought I was doing the right thing, but I
ended up hurting my chances of securing a loan. Please consult your loan officer as far in advance
as possible to figure out what you need to do to clean up your credit and qualify for a first home
buyer loan program.
After you have reviewed your credit report and made a note of the incorrect items, such as a paid
collection still being report as unpaid, it is time to file an online dispute with each bureau reporting
the incorrect item. You can mail letters to the bureaus but it will usually take much longer to update
the reports and scores. You will have to pay for an individual credit report with each bureau to get a
report number which is necessary to file an online dispute. Also, you will need the full company
name of the disputed item, account number of the disputed item, and the reason for your dispute
(such as, it is not your account, you have paid the account, etc.) The bureaus must update the
disputed item within 30 days and if the creditor misses the deadline to verify the information, the
bureaus must remove the disputed item even if the negative information is correct. Legally, you can
dispute items on your credit report every 30 days as many times as you wish. If you are lucky,
sooner or later your creditor may miss the deadline and the negative information disappears. You
should know your rights and you may want to review the Fair Credit Reporting Act. Finally, the jury is
out on credit repair agencies and I believe there are no guarantees that they will improve your credit
scores. You may just want to do it yourself and save yourself hundreds possibly thousands of
dollars.
Paying off Collections, Judgments, and Liens
In general, you should try to pay off all bad debt 6 months to 1 year prior to purchasing a home so
your credit scores will have a chance to go up. Usually, you can negotiate with creditors to settle for
50%-60% of the balance owed on a collection, judgment, or lien account. If you do reach a
settlement with the creditor, you should demand that they send you a letter that they will report to
the bureaus that your account is paid, current, and never late. Otherwise, the account will still show
up as bad credit and your credit score will not improve right away. If you are about to apply for a
home loan, it may be better not to pay off this account if the creditor has not reported the item to the
bureaus for a long time.
The clock starts all over again once you pay off the account and the credit item will show up as
recent bad credit and the credit score will take a big hit. Most mortgage lenders will require that
collections, judgments, and liens be paid off prior to closing your home loan, but they will only run a
credit report with scores once at application and will update the negative credit items with a
supplement report. Sometimes you may want to let sleeping dogs lie if the scores are good
enough to qualify for a home loan without the bad credit being paid off just prior to mortgage
application. For example, many years ago I had a student loan which became 120+ days
delinquent and the university stopped reporting the account to the bureaus 5 years prior to
application for my first home loan. I made payment arrangements with them and they verbally
agreed not to report me late to the bureaus. I decided to pay off this account right before applying
for my loan, and my credit scores tanked 20-40 points because the reports showed that the
account was paid off but I was late for the last 5 years. I was really upset and I called the university
and reminded them that they were not suppose to report me late again, but said they had no written
record of the agreement and that I should have paid my payments on time. Now, I was sweating
and scrambling and I had to provide letters of explanation and documentation, which included the
kitchen sink, to get the underwriter to approve the loan. I thought I was doing the right thing, but I
ended up hurting my chances of securing a loan. Please consult your loan officer as far in advance
as possible to figure out what you need to do to clean up your credit and qualify for a first home
buyer loan program.
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Credit Report Dispute
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