A New Downside to Credit Repair

08.27.09
By John Ulzheimer

I've written time and time again about credit repair. These services help consumers dispute negative information on their credit reports for a fee. The negative information could be correct or it could be incorrect.

Some people think credit repair is unethical and illegal. I’'ll let you be the judge on the ethics of credit repair, but it’s certainly not illegal if the provisions of the Credit Repair Organizations Act are followed.

Having said this, there is a new downside to using credit repair organizations that is becoming more apparent. It’s referred to as the "dispute narrative." The Fair Credit Reporting Act requires that the credit bureaus and lenders note any account that is disputed as being in dispute by the consumer. These dispute narratives commonly show up as “Consumer Disputes – Reinvestigation in Progress.”

The number of credit-related lawsuits has increased so dramatically that lenders and collectors are erring on the safe side and listing accounts as being “in dispute” even if the consumer calls or writes with a benign question such as “I think my balance is wrong”, or “I don’t think you calculated my interest correctly.” This has to lead to an increase in the number of dispute narratives appearing on credit reports.

The problem is that lenders know that these dispute narratives cause FICO scores to ignore certain important aspects of the account. This means disputing numerous accounts could artificially bump a consumer’s FICO score. Needless to say, this concerns lenders. So in response to dispute narratives, some lenders – mortgage lenders in particular – are rejecting mortgage loan applications where consumers have disputed accounts on their credit reports.

This often sends the consumer into a panic because it creates the need for them to stop disputing an account without seeming to dispute it. Follow me... how can you ask the credit bureau or a lender to remove a dispute narrative without challenging the current listing of the account? By asking that the narrative be removed you are, technically, disputing the validity of the account. It’s certainly something to think about whether or not you use a credit repair service to dispute negative credit information.  

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Lenders and collectors are erring on the safe side and listing accounts as being in dispute even on minor account issues.