Will My Scores Go Up When I Dispute My Credit Report?

Nov
15
2012

I received the following question last night from a Facebook friend: “John, I want to ask a question as you’re the only person I believe regarding this.  (name withheld) says in a video that an “account in dispute” is bypassed or not looked at for 30 days, and only 30 days by FICO when calculating the score. I have heard so many stories on this- is that the case?”

The answer is complicated because there is so much misinformation floating around on the web.  I wrote about your score during a dispute extensively here…

How many disputable items do you have on your credit report? Click here to see your updated credit report and score.

Incidentally, that post is one of my most popular and has been shared over 2,300 times as of today.  Seems like a lot of people have the same question.  Here’s exactly what happens when an item is in dispute relative to your FICO scores;

The item is, or should be, coded as being in dispute.  This is accomplished by either the credit bureau or the data furnisher (bank, collector, etc) adding a two character alpha code to the tradeline, collection or public record. Whoever receives the dispute (the credit bureau or the data furnisher) is the party responsible for adding the code.  That code is “XB” and it will show up on a credit report as language that reads “Account information disputed by consumer under the Fair Credit Reporting Act” or some reasonable derivative.

That code is called a Compliance Condition Code and it is a requirement of the Fair Credit Reporting Act to add it to a disputed item. If the code is not added when a dispute is received the you could have an FCRA violation.  I’ve had many cases as an expert witness where the Compliance Condition Code was not added.

The Impact of the XB Code

Ok, now that we all understand how, why and when the XB code is added to a credit report let’s address the impact of that code on your FICO scores.  That’s where all of the confusion and incorrect information seems to be coming from.

When ANYTHING on a credit report has the XB code associated with it FICO’s scores do NOT ignore it.  That’s a myth that’s being perpetrated all over the place.  FICO’s score ignore only certain aspects of the credit item, not the item entirely.

FICO’s scores do not consider the disputed and XB coded item for two categories of their scoring evaluation; the performance and debt categories. “Performance” is the category that considers the presence (or lack thereof) of negative information like late payments, charge offs, collections, etc.  That category is worth 35% of the points in your score.  “Debt” is the category that considers the balance associated with an item including measurements like the infamous debt to limit ratios. Other than those two scoring categories, the item is still being seen and considered by the FICO score even when in dispute and coded with XB.

The amount of time FICO treats the item as described above is dependent on how long the XB code is on the tradeline or collection or public record. If it’s there for 30 days, then it’s 30 days.  If it’s there for 14 days, then it’s 14 days.  If for some reason the XB code survives the end of the dispute process and isn’t removed then FICO will continue to bypass it for certain scoring categories as long as it’s on the tradeline, collection or public record.

The reason your FICO score will likely go up when an item has the XB code associated with it is because it’s not being counted against you if it’s derogatory.  And, the balance of the item is also not being considered.  That’s one of the reasons lenders want disputes resolved before they’ll allow loans to close.  They know the score they’re seeing isn’t a true and accurate score because XB is likely causing the score to be artificially higher. Once the XB code is removed all bets are off and FICO considers the item fully.

How many disputable items do you have on your credit report? Click here to see your updated credit report and score.

Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

 

 

 

Comments

  • Tony (Antonio ) Monson, MD
    May 10, 2013

    I RECENGTLY GOT A DIVORCE. M ex-WIFE and I HAD A LINE OF CREDIT FOR A QUICK PAYMENT WITH THE BANK IN CASE OF THE CREDIT CARD WAS OVER the limit
    I WAS UNAWARE OF THIS LINE OF CREDIT, NOBODY INFORMED NOR MY EXWIFE
    LAST MARCH WHILE TRAVELING THROUGH TEXAS REFULING GAS, MY CREDIT CARD WAS DENIED AS IT SAID: NO FUNDS AVAILABLE
    WHEN A RETURNED TO MY TOWN, I WENT TO THE BANK AND THEY TOLD ME THAT I DIDN’T PAY $25.00 for my mentioned above line of credit AND THAT WAS THEY STOPPED MY CREDIT CARD UNTIL I OULD PAY IT
    They didn’t mentioned anything about penalty for not payment, I did pay it immediately
    I am a physician and I applied for VA loan and also a line of credit, they approved, but told me that my Credit score was 685. My credit report the month of March was 786
    The bank that I have the line of credit and told me that the reported to Acufax? and gave me 80 plus points
    penalty as I didn’t pay $25.00
    I believe that this is unfair
    I have been with this bank 13 years andI I didn’t receive any awarnedd

    I wish to dispute this and I need your help
    My name Tony

  • May 14, 2013

    Tony, I edited your comment removing your full name, phone number and email address. You should be careful not to post that information on a public forum like a blog. As far as the dispute you have with your bank, that’s not something I do. You’ll have to take that up with them yourself. Good luck, John

  • May 30, 2013

    The score that matters in your example is your FICO score. If by “corrected” you mean the lien has been removed then the FICO score considers that immediately. If by corrected you mean that it is now showing as a release lien (paid) then I wouldn’t expect much, if any, of a score change.

  • Yvette
    May 30, 2013

    I am so confused about my credit score. I have been trying to improve me score for 1 1/2 years now, trying to purchase my first home. I feel like everything positive that I do to improve my score turns out to be negative for my score. Why is this happening? I have paid all but 2 bills (all medical) but its turning out to the have been the wrong thing to do. My score has dropped 23 points in 3 months and I don’t know why my score would decrease. I have fewer bills reporting today then I have had in a long time. What am I doing wrong? what else can I do? I have been working with a lender, but its like everything that I am being told to do is “not ” thing to do. How/what do I do to improve my score. I am so frustrated with this entire thing. Its very discouraging to go threw all of this. Sorry to vent.

  • May 31, 2013

    Hi Yvette, I feel your pain. Be careful who are taking your score advice from. There aren’t many people, including lenders, who understand how they work and bad advice can lead to a lower score, as you’ve realized. It’s hard to diagnose your issue from your message b/c there are too many details missing. But, if you’re making payment on debts that are in collections or in default then that’s not going to help your scores. It’s the right thing to do though. Paying off delinquent balances isn’t a silver bullet b/c the item is still on your credit reports, but now just showing as being paid. It takes time for scores to improve.

  • Yvette
    June 3, 2013

    Thank you so much for the fast reply. I guess the only thing is to except and realize being a homeowner is not for me. I was told be very watchful over all spending and budgets, and have been doing so for the last 1 1/2 year. Paying all bills off, keep cc utilization under 20%…etc… Now I find out that I have been told the wrong information and it just feels like a kick in the face ecspecailly when you “think” someone is here to help you and they’re not. Well I am physically, emotionaly and mentally tired. Do I want to become a homeowner? Yes, however trying to become a home owner is just down right frustrating. I’ve heard bad stories about the whole purchasing process, but what I’m experiencing is horrible. I just need to step away from the entire process until the are individuals involved who are there to help you with the journey of homeownership.

    Thanks again for your reply.

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