How Can Disputed Accounts Affect Your Credit Score?
Account disputes differ, based on whether you are disputing charges on your credit card account directly with the card issuer or challenging an account on your credit reports via the Equifax, Experian and TransUnion credit bureaus. A challenged charge hurts your credit score if your card issuer disagrees with you and you refuse to pay the bill, while credit report disputes often improve your score.
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Charge Disputes
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Consumers are entitled to dispute items on their credit card accounts for various reasons, including never getting the goods and services or receiving a defective item. You can also file a dispute if you do not recognize a transaction and believe it may be unauthorized or fraudulent. Your card issuer temporarily removes the charge from your account while it investigates. The removal is permanent if your dispute is successful, but the charge goes back on your bill if the issuer sides with the company, and you are expected to pay it.
Credit Report Disputes
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Credit report disputes involve mistakes on your credit bureau reports. For example, some of your creditors might misspell something in their entry or report a wrong balance, account opening date or payment status. You can dispute any mistake, but challenging negative entries is especially valuable because Equifax, Experian and TransUnion must delete the information permanently if it cannot be verified within a month.
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Charge Dispute Effects
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Your credit card company considers your account delinquent if you fail to pay at least the required minimum every billing cycle. You get a negative credit report entry if you refuse to pay a disputed charge after the card issuer rules that it is valid. Your credit score is based on credit bureau data, and 35 percent of the number comes directly from your payment history, so the unpaid account has a lot of negative impact. The effect compounds every month as the delinquency gets worse. The card issuer will eventually charge off the account or send it to a collection agency, which inflicts more credit score damage.
Credit Report Dispute Effects
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The Fair Credit Reporting Act forces the credit bureaus to investigate all legitimate disputes and resolve them within 30 days, which means removal of the data if the original lender cannot verify it or does not answer the validation request within the time limit. Your score improves based on the negative information in the account that gets removed. For example, just one late payment penalizes you up to 110 points, according to Carrie Davis of the Spend on Life website, so your score goes up by that amount when the data is erased.
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References
- Federal Reserve Bank of San Francisco: Your Credit Report, What it Says About You
- Equifax: FCRA Summary of Rights
- MyFICO: What's in Your FICO Score
- SpendOnLife.com; Late Payment Can Drop Your FICO Score 110 Points; Carrie Davis; December 2009
- Federal Trade Commission; Fair Credit Billing; August 1999
- Bankrate.com; Disputing a Credit Card Purchase; Leslie McFadden; April 2010
