Credit Report Dispute

Credit Report Dispute Will Halt Mortgage Loan Process

Gustan Cho Associates are mortgage brokers licensed in 48 states

This BLOG On Credit Report Dispute Will Halt Mortgage Loan Process Was UPDATED On April 17th, 2019

Folks who go through the credit repair process often do a credit report dispute with the credit bureaus. Consumers do credit report dispute by stating that they are disputing the derogatory information on their credit report.

  • Under the federal Fair Credit Reporting Act, when a consumer does a credit dispute to the credit bureaus, the credit bureaus have 30 days to investigate the consumer’s dispute
  • Credit Bureaus need to notify the creditor to validate the derogatory information
  • If the creditor does not respond back in 30 days to the credit bureaus, the bureaus need to remove the dispute in question
  • This is a technique used often by many credit repair companies and consumers who do credit repair by themselves
  • Home buyers who plan on applying for a mortgage need to pay special attention to mortgage guidelines when it comes to credit dispute

In this article, we will cover and discuss how credit disputes halt and impact the mortgage process.

What Types Of Items Can Be Disputed?

Many consumers dispute all derogatory items from their credit reports hoping the creditor does not respond back. The credit bureaus need to remove the negative derogatory credit item if creditors do not validate the credit report dispute:

  • Often times this works
  • If the creditor responds back, consumers often dispute it again for the second go around and third go around

Does Credit Repair Work

Many home buyers often hire a credit repair company prior to getting ready to apply for mortgage. Going through credit repair prior and/or during mortgage process can often do more damage then good. Credit Repair does work but any credit disputes during mortgage process will halt the loan approval process:

  • I have seen charge offs, collection accounts, bankruptcies, foreclosures, late payments, tax liens, and judgments be removed from credit reports
  • There are many savvy creative credit repair consultants who know the ins and outs of loopholes and can get derogatory items completely removed from credit reports
  • However, if home buyers planning on purchasing a home or refinancing in the near short term, there are strict policies on credit dispute
  • FHA, VA, USDA, Fannie Mae, Freddie Mac do not allow dispute during mortgage process
  • The mortgage process will be suspended until all disputes have been retracted
  • There are times where it is difficult to remove a dispute
  • Credit Scores often drops when consumers retract disputes

Mortgage Guidelines On Credit Dispute

Borrowers applying for a mortgage loan and have a dispute and the derogatory item has a credit balance of $1,000 or greater (total outstanding collections), mortgage process cannot proceed until the disputed item is retracted.

  • Borrowers disputing a derogatory item that has zero balance are exempt from retracting disputes
  • Medical collection disputes are exempt
  • Borrowers can have an outstanding unsatisfied balance on any medical collection accounts and have a dispute
  • Medical disputes are exempt no matter how much the outstanding balance

Retracting Dispute Drops Credit Scores

A credit dispute needs to be retracted by the consumer by notifying the credit bureaus or creditors in order for the mortgage process to proceed. There are times where retracting disputes can be difficult:

  • Retracting a credit report dispute will lower credit scores
  • Depending on the consumer, a retraction of a credit report dispute can drop a consumer’s credit scores by 80 points or more
  • I have seen this happen over and over again
  • Also, there are times where a creditor will not retract the dispute and leave the dispute on credit report
  • This can take weeks if not months

Mechanics Of Credit Report Dispute

When consumers dispute a derogatory tradeline, the credit bureaus automatically negates the negative factor from the credit scoring formula. Due to negating the negative factor, a credit dispute will often boost consumer credit scores. If consumers retract a credit report dispute, the negative factor is factored back into the credit scoring formula so this will cause the drop of consumer credit scores. The amount of drop depends on the type of derogatory and the age of the derogatory tradeline. A loan officer should never issue a pre-qualification and/or pre-approval letter to borrowers if they notice any credit disputes.

Related> What happens to your credit score when you dispute?

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