How Can Disputed Accounts Affect Your Credit Score?

If you’ve found an error on your credit report, you’re not alone. Government data shows that one in five Americans experiences an error on his credit report. Further, a recent study found that more consumers complained to the Consumer Financial Protection Bureau’s website about credit reporting than about any other type of business. It’s upsetting to find inaccuracies on your credit report, especially knowing that they can sometimes affect your credit score negatively.

According to the Fair Credit Reporting Act, every consumer has the right to dispute an error on her credit report. For example, say you check your credit report and see that your score has been hurt because you’ve missed payments. However, you know that you’ve made all your payments and paid your bill on time each month. You would probably want to dispute this information.

Once you report the error with the credit card company, they must inform the three major credit reporting agencies – Experian™, Equifax® and TransUnion® – that your account is under dispute. The credit reporting agencies will now list the account as "disputed" on your credit report.

Unfortunately, this means your account dispute will be visible to lenders or anyone who checks your credit report. If you are applying for a loan, a dispute on your credit report can set back the process. Many lenders will not issue a loan until the dispute is resolved.

Once you submit your error claim, the investigation process should move quickly. In the vast majority of cases, a creditor is required by the FCRA to respond to your dispute within 30 to 45 days. If the creditor finds in their investigation that they were in error, they must quickly inform the three credit reporting agencies of the inaccuracy. Still, it's a good idea to send a copy of any documents your creditor sends you about the dispute to the credit reporting agencies so they can accurately update your credit report.

When an account is disputed, it can impact your credit score. There are two main credit scoring models: VantageScore and FICO. Each of these models treats disputed accounts differently. VantageScore, the model created by the three credit reporting agencies, temporarily removes the entire account from your credit score. FICO, on the other hand, excludes from your credit score only the specific account activity that is in dispute.

So, using the missed credit card payment example, the VantageScore model would exclude that entire account from your credit report while the information is in dispute. The FICO model would remove just those pieces of information that are in dispute until an outcome is reached. Of course, these different methods will affect your credit score differently. Depending on your individual financial situation, a disputed account could ultimately help or hurt your credit score.