The Fair Credit Reporting Act gives the ability to challenge information on our credit reports with which we do not agree, or that is incorrect. When you file a dispute with the credit reporting agencies they are required to show the item as being “in dispute” and place the code “XB” on the specific tradeline. The tradeline on your credit report will then read as, “Consumer disputes, investigation in process”. Essentially, it means that the credit bureaus received your dispute and are actively investigating the information.

Sounds awesome. So what’s the problem?

When the XB code is present on an tradeline, a public record, or a collection, the FICO scoring system treats it differently than it would if the account was not actively in dispute. FICO does not allow a disputed tradeline to be factored into your credit score AND people do not dispute tradelines that are not negative, therefore when you dispute a late payment or collection account, your credit score can be deemed “not valid” because the bad account is not being factored into your score. The fact that the FICO score is temporarily ignoring these items can cause your scores to be higher. Having said that, the score improvement is temporary and can’t be used to “trick” the system.

If the item has been verified as accurate, then the credit bureaus are no longer investigating it. That means the credit bureaus will remove the “in dispute” language by removing the XB code as well as now take that account into consideration when determining your credit score.

This isn’t new news and lenders also know this, which is why you can’t just go and dispute everything that’s bad on your credit reports, have your FICO scores shoot through the roof, and then go apply for a loan. Trust me, before the crash of 2008, this was an actual strategy used by MANY in the industry. It did not take the Agencies long to figure the game out and put a stop to it. Most lenders require that tradelines DO NOT have the “in dispute” language before they’ll process an application to closing. There are always exceptions which allow disputed tradelines but it’s best to address this situation head on with your loan officer so you can determine if you will have to UNdispute any accounts which could potentially drop your credit score.

Review your credit with a knowledgeable loan officer

If you disputed a tradeline but the account was not removed or changed, then you can still have it shown as being “in dispute” for as long as it remains on your credit reports. Just to add a layer of confusing, a tradeline may actually still say “in dispute” but not be considered disputed. The difference will be the way the dispute is worded as well as if the tradeline is actively being investigated. The new verbiage will basically read that the account was disputed, it was then resolved but you are not happy with it. 😊 When the tradeline is not actively being investigated it does not cause the score to ignore it for scoring purposes and the investors feel they have a “valid” score.

Is your head spinning yet?

This is why I am here. I am very versed on credit scoring models and what you can do that will help or hurt your score. I am truly here to help guide you to homeownership. Maybe your credit is not ready right this second but maybe with a little guidance it can be over time. If you are interested in one day purchasing a home, I encourage you to reach out to me and together we can establish a game plan to help you reach your financial goals!