From time to time, an error might appear on your credit report. Mistakes on your credit report are one of the most significant reasons financial experts advise you to regularly check your credit file with the national credit bureaus.
Catching incorrect information quickly, especially when it is a derogatory mark or related to identity theft, will help you prevent damage to your credit history. If issues with your credit report go unnoticed, you might miss out on major financial opportunities with zero understanding as to why.
Thankfully, borrowers are afforded the right through the Fair Credit Reporting Act to challenge information included in their credit reports. Needing to complete the credit dispute process can feel tedious, but it’s worth the effort to keep your credit report as accurate as possible.
Some borrowers experience a minor credit score drop after disputing information on their credit report. While file disputes do not harm your credit score, in some instances, the outcome of a credit dispute could result in your credit score dropping temporarily due to various factors.
What Credit Bureaus Include on Credit Reports?
To better understand how a dispute might affect your credit, let’s take a look at what information is included in credit reports. Three major credit bureaus—Experian, Equifax, and TransUnion—are responsible for compiling the necessary information that makes up your credit report.
Each bureau includes four categories of information they deem relevant to your credit risk and reliability:
The details provided in this section of your credit report are used to identify you. They include your name, address, date of birth, Social Security Number, and employment information you may have provided in previous credit applications. This section is not used in the calculation of credit scores.
Whenever you open a new credit card account or take out a loan, lenders will report it to the credit bureaus, and it will appear in this section of your credit report. The information will include the account type (auto loan, credit card, online fast cash loans, mortgage, etc.), the date you opened the account, the credit limit or loan amount, the credit card balance, and your payment history.
Every time that you apply for credit cards or loans, you are authorizing lenders to pull a copy of your credit report. This automatically creates hard inquiries on your credit report. Too many hard credit inquiries within a short period of time will give most lenders the impression that you are a credit risk.
Public Records & Collections
The three bureaus gather relevant public records like Bankruptcy filings from state and county courts. Additionally, any overdue debts that have been passed off to a collection agency will appear on your credit report.
The Calculation of Credit Scores
The FICO score is the most widely used scoring model for determining the qualification of borrowers for financial products and services. Your credit score is a three-digit number ranging between 300 and 850 calculated based on the information on your credit report. It is widely relied upon by lenders and credit card companies to determine your creditworthiness.
FICO credit scores use metrics divided into five categories that hold varying levels of importance:
Your payment history carries the most significant weight in your credit score. Payment history on credit cards, auto loans, etc., accounts for 35% of your total credit score. Consistent on-time payments lead to a credit score increase, while late payments and missed payments harm your score.
Amount You Owe
How much you owe on your various accounts makes up 30% of your FICO score calculation. A significant aspect of this metric category is your credit utilization ratio. Your credit utilization ratio is the amount of money you owe compared to the total credit limit of all your accounts.
Credit History Length
The length of your credit history accounts for 15% of your credit score. This category focuses on the average age of your credit as well as the age of your oldest and most recent accounts. It is better for your credit score to have an older and more well-established credit history.
Your credit mix – i.e., the variety of accounts you have – is 10% of your credit score. If you have too many of one type of debt, you lack a healthy mix of installment loans, retail credit, car loans, home loans, and credit cards. Balance is the key to a good variety.
The final metric category in calculating your FICO score is recent activity like a hard inquiry and new accounts opened. New credit takes up 10% of your score’s calculation. Too many hard inquiries or credit card accounts opened close together harms your creditworthiness to lenders and will likely result in a credit score drop.
How To Make a Dispute on Your Credit Report
Borrowers wise enough to listen to the advice of financial experts check the free credit report available to them annually. By regularly reviewing your credit report, you can catch any inconsistencies or inaccurate information that could have negatively affected your credit score.
Suppose you have found some incorrect information on your credit report. How do you make a new dispute with the credit bureaus that compile credit reports?
Common Disputed Information
Some common errors which need to be disputed on credit reports include:
- Identifiable information mistakes like a misspelling of your name, the wrong address or phone number, or some identity details from another person’s report.
- Inaccurate account data, such as closed accounts being reported as open or incorrect derogatory marks.
- Credit limit and available credit errors on your credit card accounts.
- Missing accurate information about recent changes in your credit.
- Other people opening accounts in your name through identity theft.
Contact Credit Reporting Agencies
After you have identified an error on your report, the Consumer Financial Protection Bureau suggests handling consumer disputes by contacting the credit bureaus that produced the report with the error.
Experian, TransUnion, and Equifax allow you to make a dispute online or by mail. Whether you write a letter or make an online dispute, be sure to include supporting documentation to back up your claims that the information on your report is inaccurate.
You can create a dispute online at Equifax, TransUnion, and Experian’s websites. If disputing credit report inaccuracies by mail, you can address your letter to one of the three bureaus as follows:
|ExperianPO Box 4500Allen, TX – 75013||EquifaxPO Box 740256Atlanta, GA – 30374-0256||TransUnion LLCConsumer Dispute CenterPO Box 2000Chester, PA – 19016|
Contact the Data Furnisher
The lender, retailer, bank, or credit card issuer who provides information to the credit bureau is also known as the data furnisher. The CFPB advises that you send your credit dispute to the data furnisher as well. They may be able to help you resolve the error or derogatory mark.
Wait for the Results
After disputing information, you will need to wait up to 45 days for the bureau or furnisher to investigate and notify you of the dispute results. If the disputed information is found to be inaccurate, then the records will be deleted or updated.
In the case that the furnisher insists the disputed data is accurate information, you can still request that the bureau include a statement about the dispute on your credit report.
Does Your Credit Score Drop After a Dispute?
Filing disputes on consumer credit reports has no impact on credit scores. The request for a correction on your credit report will not, in and of itself, help or harm your score. That being said, it is possible that dispute results could change data on your credit report that causes a change in your credit score.
If you were to have late payments or derogatory marks removed from your report after a dispute, you would likely see an increase in your credit score. But there are also changes that could result from corrected data that would lead to a temporary drop in your score.
If you closed a credit card account, but it shows as open on your credit report, fixing that error could significantly change your credit utilization rate. Your credit utilization rate substantially impacts your credit score, so if your credit dispute alters your total credit limit, your score might suffer consequences from the correction.
If your credit score has dropped after successfully completing a credit dispute, it should not take too long for your score to recover if you continue to use credit responsibly.
Tips for Improving Credit Scores After a Dispute
There are plenty of ways to boost credit scores after a temporary drop. Here are a few tips that could make the biggest difference:
Diversify Your Credit
Mix up your credit types. If you only have loans with monthly installments, get a new credit card. If you only have credit cards, look into some other financial products that could diversify your credit. Having a good variety of credit types could boost your credit score substantially.
Become an Authorized User
If you don’t need a new credit card right now, have your partner, a family member, or a close friend add you as an authorized user on one of their credit cards. If they have a good payment history, this could immediately boost your score.
Keep Your Credit Utilization Rate Low
Credit utilization has a massive impact on credit scores. Ideally, experts recommend that you keep your credit utilization ratio below 30% at all times.
Each late payment or missed payment on your report could potentially cause a drop in your credit score. To get a credit score increase, avoid making a late payment on any of your accounts.
If you follow these strategies, you might not see results overnight. Building your credit score back up requires a bit of time and patience. But if you stick with it, you will be rewarded for your efforts.
Does Disputing a Credit Report Hurt Your Credit Score?
Can Disputing Credit Report Inaccuracies Lower Credit Scores? – Experian