What Are Disputed Credit Accounts? *Credit Accounts (that report on the credit report) in which there is disagreement about any material item like balance, interest rate, payments are most common, any aspect of the agreement between a borrower (creditor) and lender (debtor). Includes:
- Disputed Charge-off Accounts (charge off shows a due debt, but no payment due)
- Disputed Collection Accounts
- Disputed Accounts with late payments in the most recent 24 months
- Can include any other credit account with “Dispute Status” reporting on the credit
Consumers dispute accounts to improve their credit score, clean up their credit history or to improve their credit picture in most cases. Disputing an account is a measurable action to take successfully combat theft or fraud. In such a scenario, the disputed credit account has no negative bearing with the mortgage lender. However, when the shoe is on the other foot and the disputed credit account does belong to the consumer, things can become problematic during the escrow process if not handled correctly.
Disputed Credit Accounts Automatically Become A ‘Red Flag’ When Buying A Home Home loan lenders are concerned with disputed credit accounts because of the future possibility of more payment liabilities which could impact the consumer’s ability to repay the loan. As such, disputed accounts must be removed from the dispute status before you can seal the deal with the home purchase. Mortgage Tip: Oftentimes, it can be handled with a simple call to the creditor to remove the disputed status.
Disputed Debts Can Open More Questions Dispute credit accounts may lead to more cash to close on the house. Here’s why… mortgage broker will take the position -that if the total cumulative balances of the disputes credit accounts is equal to or greater than $1,000 the debt will have to paid to zero in order to remove the dispute status. For example if a consumer has $6,000 in disputed credit accounts, they can settle for x amount as long as the creditor reports “no longer reported as disputed”. This action will satisfy the lending risks in issuing purchase money financing. If the dispute accounts are less than $1,000- mortgage broker will require the buyer to contact the creditor to change the reporting status from “account in dispute” to “no longer reported as disputed.” Home Buyer Credit Tips:
- Remove all dispute status on all credit account before applying for mortgage
- If you have not found a home yet, before home searching, see if any accounts need to be zeroed out, this can be accomplished with your lender and copy of your credit report from a financial services provider
- If possible avoid disputing any credit accounts (other than theft or fraud) if even checking to see how much you house you can afford
Thinking about buying a home? Once know how much you can qualify for? Start here with our mortgage qualifier calculator or get a free home loan quote.