Disputed Credit Accounts – The Pros and Pitfalls

There are potential positives in disputing accounts. For example disputing a credit account that is incorrectly reporting negative information and successfully removing that from your credit account will typically boost FICO scores. However the dispute must work through the process in order to remove the negative information and this could potentially delay the loan process.

Another key consideration is to fully understand how the dispute process impacts your FICO scores while the account(s) in question is in dispute. The Fair Credit Reporting Act requires the reporting agencies to show disputed accounts as being “in dispute.” The agencies do this by attaching a special code to the disputed item(s) which triggers the FICO scoring mechanism to disregard both the debt related measurement and payment history.

Why is this so important? Let’s say you have disputed a situation in which a credit card account is near the maximum credit line and has previous late payments. The FICO score would normally decrease for both the high proportion of credit used and the derogatory aspect of the credit. By ignoring these factors a person’s FICO score would likely report higher than if that dispute was removed.

The reality is a lot of people will dispute accounts that are reporting correctly in hopes the creditor removes or changes the account history. Lenders understand this and will typically require borrowers to address the dispute(s) in an attempt to ascertain a correct FICO score. As FICO scores are included in many loan approval facets such as approvability, interest rate determination, mortgage insurance costs, etc., it is critical for the lender to work with a correct FICO score.

It is also critical to understand that if you have disputed items on your credit report your credit score is likely to be impacted and it could very well be lower than it otherwise would have been without the dispute once disputes have been removed or resolved. It is critical to work with your loan originator to handle potential dispute issues as early as possible in the loan process.

Following are examples of verbiage concerning underwriting guidelines:

Fannie Mae*

When Desktop Underwriting (DU) issues a message stating that DU identified a disputed trade line(s) and that trade line(s) was not included in the credit risk assessment, the lender must confirm the accuracy of disputed trade line(s) reported on the borrower's credit report.  If it is determined that the disputed trade line information is accurate, lenders must ensure the disputed trade line(s) are considered in the credit risk assessment by either obtaining a new credit report with the trade line(s) no longer reported as disputed and resubmitting the loan case file to DU, or manually underwriting the loan.

If DU does not issue the disputed trade line message, the lender is not required to further investigate the disputed trade line(s) on the credit report, obtain an updated credit report (with the undisputed trade line information), or manually underwrite the loan.

However, the lender is required to ensure that the payment for the trade line(s), if any, is included in the total expense ratio if the account does belong to the borrower.



The existence of potentially inaccurate information on a borrower’s credit report resulting in a dispute must be reviewed by an underwriter. Accounts that appear as disputed on the borrower’s credit report are not considered in the credit score utilized by TOTAL Mortgage Scorecard in rating the application. Therefore, FHA requires the lender to consider them in the underwriting analysis as described below.

With this Mortgagee Letter (ML), FHA is revising policy on manual downgrades for applications with disputed accounts to reflect the risk associated with derogatory and non-derogatory disputed accounts for factors such as age and size of outstanding balance.


Federal Trade Commission: Consumer Information – Disputing Errors on Credit Reports


*Guideline information can be found at the links above. Information was added to aid in understanding, e.g. Desktop Underwriter instead of DU. Guideline information is always subject to change.