Many folks with prior bad credit try repairing their credit reports by disputing derogatory credit items to the three credit reporting agencies; Transunion, Experian, and Equifax. Disputing erroneous items are fine but many dispute derogatory items that are correct hoping the creditor who are reporting the derogatory item does not verify the derogatory credit item. For example, say a consumer has did not pay an old credit card account and there is an unpaid credit balance of $2,300.00.
Credit Dispute To Delete Derogatory Items
The consumer can do a credit dispute and challenge that the creditor verify that derogatory item is legitimate. This is done by the consumer writing a credit dispute letter to the three credit reporting agencies stating that the derogatory item is not theirs and requesting the creditor to remove the credit dispute. The creditor has 30 days to respond to the credit reporting agencies with verification. If the creditor does not respond to the the three credit bureaus within the 30 days allowed, the three credit reporting agencies must remove the derogatory item off the consumer’s credit reports. This is the typical way on how credit repair works and thousands, if not millions, of consumers use this technique in trying to delete the derogatory items. Credit repair companies use this technique over and over. If the creditor does verify to the three credit reporting agencies, credit repair companies use other letters contesting the validity of the derogatory items.
Credit Dispute Can Backfire
Credit disputes can backfire on you if you are a mortgage loan applicant. Fannie Mae and FHA guidelines do not allow credit disputes on derogatory information that has credit balances. If you are a mortgage loan borrower and you have active credit disputes showing that your are disputing derogatory items with credit balances on your credit report, your mortgage loan application will be suspended until the credit dispute is retracted. If the mortgage loan borrower has credit disputes on items with a credit balance, the creditor can choose not to have the dispute retracted. If that is the case, the consumer will need to pay off the credit balance. If the credit dispute is retracted, there is the possibility that the mortgage loan borrower’s credit scores will tank. I had a recent case where one of my clients had the credit dispute retracted but the outcome was that her credit scores dropped by 80 plus points. This drop totally disqualified her for a mortgage loan and I needed to drop her off the mortgage loan application and use just her husband with a non-occupied co-borrower.
Older Derogatory Items
If you get solicited by a credit repair company or if you decide to repair your own credit, DO NOT dispute derogatory items with a credit balance. This tactic can be detrimental to your credit scores and will definitely backfire on you when you apply for a mortgage loan. The older your derogatory item is, the less impact it will have on your credit scores. Any derogatory item older than two plus years will have little or no impact on your credit scores.