Errors and Disputes on Credit. How and When to Move Forward

I ran across the following issue with a recent client.  After running their credit, we discovered what appeared to be an error on it.  Positive that it was indeed an error, they wanted to address the problem immediately.  
     My suggestion to these clients was to do nothing … right now.  
    I know.  That sounds contrary to what common sense would dictate you do.  But in this particular case, it was the best thing to advise for their current situation.
    Why did I make this suggestion?  Why not address and clear-up their credit error immediately?  Get the ball rolling??  Certainly this was hurting their score?  
     Well … maybe.  And then again, maybe the answer to that is not so obvious.  There are actually times that disputing a credit card bill or error can actually be counterproductive to what you’re trying to accomplish overall, at least in the short term.  And while you’re in the midst of applying for a mortgage loan is one of those times.  You need to slow down and perform a thorough analysis to see what the repercussions of your actions might be, both pro and con.
     Again I say … I know.  That seems crazy.  But it’s true.  The 3 reporting Bureaus (Trans Union, Experian, Equifax), upon being informed of a dispute, immediately note your account accordingly.  This can actually be harmful for a couple of major reasons.
     First, a “flag” or noted dispute on your account could make lenders and underwriters scrutinize your credit report even closer during their mortgage processing.  Their thinking might be “if there is one problem, there may be others”.  Further questions could be raised.  
     But secondly, should your credit report be “flagged”, a credit-scoring bureau may actually disregard or skip-over the account noted in the dispute.  Depending on the individual’s credit and the number of accounts they have, this can be harmful to their scores. This is especially true for young borrowers or those trying to start over (such as in the newly-divorced). 
     Now I know that some are going to try to play the credit-scoring system.  They’re going to think  … “A – Ha!  Creating a “dispute” regarding my high-balanced/late payment credit account will help me!”  This tactic done in the hopes that the bureaus WILL actually disregard or skip-over that specific account, ultimately driving-UP your score.  
     I’ve got some bad news for you.  It’s already been tried.  And if you’re applying for a large purchase (say a car or a house) around that same time?  They ARE going to question or call you on it.  And that will create even more problems regarding your application and approval for loan.  So don’t try it.  It’s not worth the risk and it will come back to haunt you.
     For my clients, the timing for a dispute was not right.  The damage rendered by the error to their credit and credit score was very minor and had no direct bearing on mortgage program availability for them.  Nor would it dictate a negative impact on the interest rate for their mortgage.  It was best to sit tight.  After their closing, I will help them address the error and work with them to clear it up.
     This scenario is a perfect example of why your credit report should be checked often.  Any errors, and ultimate disputes, will be caught and then cleared-up long prior to making application for a mortgage or other need.  Just a wise practice to establish for yourself and carry-out with consistency.
     This also illustrates exactly WHY it’s so very important to work with an experienced, credit-saavy mortgage lender.  They are going to know what is best for your personal financial scenario … and IF and WHEN to pursue a dispute with the credit reporting agencies should that situation arise. 
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