One of the most important factors lenders evaluate when approving a mortgage is the buyer’s credit score. As a result, many aspiring homeowners look for ways to improve their credit score quickly. One of the common approaches is to dispute negative items.
However, it’s important to understand this option before filing disputes for every negative item on your report. Here’s how a credit report dispute could stop you from buying a home, and how to go about it the right way.
What is a Credit Report Dispute?
In layman’s terms, a credit report dispute is a process of arguing items on your report that negatively impacts your credit score. These items could include anything from collections that are showing up on your credit report to unapproved loan inquiries from third-party agencies. You may also choose to dispute information that’s recorded erroneously, such as the wrong name or incorrect dates.
As these factors are ultimately responsible for a lower credit score, removing them can spark an immediate improvement. However, there are caveats to taking this approach.
Why are Credit Report Disputes Red Flags for Lenders?
The dispute process is meant to remove negative items that are inaccurate, fraudulent, or still on your report past the statute of limitations. They are not meant to remove that time you forgot to pay your phone bill last year.
Mortgage providers use your credit score as an indicator of whether you’re likely to pay your mortgage or default on it. In essence, they measure the risk of approving the loan based on your previous borrowing behavior. Thus, if a lender sees that numerous items are under dispute, they could be hesitant to approve your loan. After all, what’s to say you won’t try the same thing on them.
If you have open disputes, you’ll need to ensure you have proper documentation about the dispute and why you’re pushing back on this item.
How to Avoid Dispute Conflicts When Buying a Home
Rather than trying to prove your case to a lender, it’s best to start the dispute process well in advance of seeking mortgage approval. This approach allows you to follow the process through to completion so that there are no pending disputes on your credit report.
For example, if you find a fraudulent item that you’re in the process of removing, a lender will remove it from their calculations if you provide sufficient proof. Additionally, once the process is complete, you can circle back with the credit bureaus to have the disputes removed.
It’s also vital to choose which items you dispute strategically. If you’re looking at a collections item that will expire in a couple of months, it’s not worth the effort to go through the process. Consider filing the data validation requests for various items, then choose which cases are viable before proceeding.
Improving Your Credit Score to Buy a Home
Depending on the nature of your credit history, there could be other ways to improve your credit score before buying a home. Focus on improving your debt ratio by paying down existing debts and leaving accounts open. Use automated withdrawals and tracking apps to ensure you’re getting the minimum payment put down on outstanding debts before the due date.
Whether you choose to dispute numerous items on your report or focus on improving your score through alternative methods, time is the key. If you have a history of bad credit, start working to improve it the moment you think you want to buy a house.
When done correctly, disputing negative items is an effective way to improve your credit score. However, don’t use this as a free-for-all approach to fixing your credit, or you’ll pay dearly.
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