Credit reports need to be accurate because they can have a significant effect on a person's life. The Federal Trade Commission explains that they can influence getting a job, a home, a car loan and qualifying for affordable insurance. Federal law gives consumers the power to review their Experian, TransUnion and Equifax reports and dispute inaccuracies.
Definition
Credit report disputes are challenges to entries on a consumer's credit report. The Fair Credit Reporting Act is a federal law that gives everyone the right to review the reports annually for free through Annualcreditreport.com and to challenge certain items with each credit bureau. The bureaus must resolve these challenges within a certain amount of time and change their reports to reflect the disputed results.
Purpose
The main purpose of a credit report dispute is to fix mistakes that pull down a person's credit score. For example, someone with a perfect payment history might have delinquent payments showing up. Up to 25 percent of credit reports have harmful errors, according to Bob Sullivan of the MSNBC Red Tape Chronicles. Disputes are also commonly used for credit repair because any mistake is ripe for challenge. Dayana Yochim of the Motley Fool financial advice site explains that even misspellings can be disputed. Consumers who find small errors in negative items can get them removed with a dispute if the original creditor does not respond on the credit bureau investigation. This brings up the credit score.
Process
The FTC advises filing disputes through the mail, even though the three credit bureaus also allow them to be done online. The consumer writes letters to each bureau outlining the disputed items and the grounds for each challenge. The FTC recommends mailing them certified, with return receipts requested. The bureaus must reveal the results of their investigations within 30 days and send new credit report copies to show the mistaken items are gone.
Effects
Credit report disputes themselves do not affect a credit score. A person's score often goes up once the disputes are resolved, if the results cause the erasure of negative items, Yochim explains. Any disputed error that is not validated must be removed, which means it no longer figures into credit score calculation.
Warning
The FCRA lets the credit bureaus ignore disputes that are obviously frivolous. The items will not be removed and the credit score remains the same. A company can validate a bad credit item after it has been removed. It shows up on the credit reports again and brings down the credit score.
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