It’s your right to dispute something that isn’t accurate on your credit report, but what happens when you apply for a mortgage. Will you be able to get the mortgage?
Unfortunately, credit disputes are red flags to lenders. A disputed account could mean that you’ll have more liabilities than report on the credit report at the time of application. Because the mortgage lender cannot tell what the outcome of the dispute will be, you could end up with a higher debt ratio than the lender calculated while the dispute was active.
Disputed credit can also give you a skewed credit score. Because disputed accounts aren’t included in the credit score formula, lenders may not have an accurate picture of your credit score if you have disputed accounts.
Why do Consumers Dispute Their Credit?
Consumers dispute credit all of the time. They do it to try to improve their credit score as well as to correct human error. Some of the most common reasons for consumer disputes include:
- Identity theft
- Late payments
Obviously, a dispute due to identity theft or fraud isn’t the fault of the consumer. But charge-offs and late payments are the fault of the consumer and if unfounded, they could end up leaving you with a lot more debt than you or the lender thought.
Getting a Mortgage With Disputed Credit
So what do you do if you disputed any debts on your credit report? Your best bet is to remove the dispute before you apply for the mortgage. Each credit bureau offers an easy process to remove the dispute. The easiest way is to call customer service for Equifax, Experian, or Trans Union and request that the live agent cancel the dispute. The process typically takes up to 72 hours, so make sure to plan accordingly.
If you don’t want to remove the dispute, you’ll need to show the lender ample proof of the reason for the dispute. This means providing:
- Letter of Explanation – You’ll need to write a letter that lets the lender know the reason for the dispute and details all of the reasons/evidence that you have that you are correct in disputing the account.
- Documentation – You’ll need to provide the lender with official documentation that shows that your reason for dispute is valid.
It’s up to each individual lender if they want to accept your evidence and give you the loan while you have an active dispute.
Getting out of a Dispute
If you don’t have ample evidence that your dispute is correct, you’ll have to pay your way out of the dispute. Lenders typically allow the following:
- Disputes for less than $1,000 – You’ll have to pay the balance in full and contact the creditor for removal of the dispute on your credit report. You’ll need to provide the lender with proof of payment in full in order for this to work.
- Disputes for more than $1,000 – You’ll have to contact the creditor to negotiate a settlement. You must then pay that amount and ask the creditor to remove the dispute. You’ll need to make sure that the creditor marks the account ‘no longer disputed.’
Credit Dispute Tips
Your best bet is to avoid making any credit disputes if you know you’ll apply for a mortgage soon. Unless there is something on your credit report that is completely inaccurate and it could hurt your chances of loan approval, leave it alone. Once you get your mortgage approval and close on the loan, you can dispute the credit as needed.
Credit disputes can be helpful and harmful at the same time. It’s a good idea to check your credit score long before you decide to apply for a mortgage. This way you know where you stand. If there are accounts you need to dispute, take care of it long before you apply for the mortgage so that they don’t stand in the way of your mortgage approval.Click to See the Latest Mortgage Rates»