How Can Disputed Accounts Affect Your Credit Score?

Look over your credit report to determine its accuracy.

Look over your credit report to determine its accuracy.

You can imagine how frustrated you would have been in high school if you were expecting a high grade-point average, only to find out it was lower than what you thought it should have been. If you found out that the school made the error, you would probably be relieved and angry at the same time. A mistake like that could have kept you out of the college of your choice. Well, your credit score works the same way, only the credit reporting agencies are probably more likely to make a mistake than your high school was. Many credit reports contain errors that make your score appear lower than what it is. This means that you might want to dispute the inaccuracy.

About Disputed Accounts

Every consumer has the right to dispute or call for an investigation of inaccurate or incomplete information on their credit report, according to the Fair Credit Reporting Act. You would determine whether an error exists by requesting a free copy of your credit report from AnnualReportCredit.com for each of the three credit reporting agencies: Experian, Equifax and TransUnion. You are entitled to one free report every 12 months.

Disputed Accounts Can Hurt Your Credit Score

Just because you can dispute an error on your credit report doesn’t mean you always should. If you are about to apply for a loan for a large-ticket item such as a house or a car and you have good credit, you might want to hold off on disputing anything, according to personal finance expert Lynnette Khalfani-Cox of Daily Finance. As soon as you dispute something on your credit report, the company must investigate your claim within 30 days. During the investigation, FICO and other credit scoring companies do not consider the disputed account. For example, if you dispute a credit card purchase on a card for which you carry a low balance, FICO would exclude that credit card to determine your credit score. This changes your credit utilization score, which is the “amounts owed” category that comprises 30 percent of your FICO score. If the card that helped your credit score is excluded, your credit score could go down.

Disputed Accounts Can Help Your Credit Score

Just as a credit card with a low or zero balance on it can help your credit score, a credit card that you have maxed out or are close to maxing out can hurt your score. Therefore, disputing a purchase on a card with a high balance on it can help your credit score. This card would not be considered when determining your credit score during a dispute. This could help raise your score. Keep in mind that if you dispute a credit card purchase that you know is accurate to boost your credit score, as soon as the investigation shows the charge was legitimate, your score probably will go down.

The Outcome

The outcome of the dispute can affect your credit score if you win the dispute. If you lose the dispute, your credit score should remain the same. For example, if you dispute an inaccuracy, and if the investigation shows you are correct, your credit score will improve once the credit reporting agency updates your records. If you dispute an item that was accurate, you would lose the dispute, and your credit score would remain the same.

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