Can I Close On a Loan While My Credit Report is in Dispute?

In what’s becoming a fairly common occurrence, consumers who have active credit report disputes are finding it hard to close on loans.  Consumers have the right to challenge items on their credit reports with which they do not agree.  The credit reporting agencies are obligated to perform an investigation of the item and verify whether or not it is accurate.

The issue is that while the item is in dispute there’s a question as to whether or not the credit file, and thus the credit score, are accurate.  And, when an item is in the process of an initial dispute it is largely ignored by FICO’s credit scoring systems.  This can sometimes lead to an artificially high credit score and mislead the lender.

So, more and more lenders, mostly in the mortgage world, are asking that disputes be completed before loan applications can proceed to closing.  It is a reasonable request, surely.  But, it causes difficulty for the consumer because now they have to re-communicate with the credit reporting agencies that they do NOT dispute an item any longer.  This, of course, is a consumer dispute because they’re not in agreement with what’s on their credit report.  Nobody has ever said the world of credit is without humor.

This is yet another reason why you should review your credit reports WELL in advance of any credit applications. If consumers will go through the dispute process months in advance rather than weeks in advance, this won’t be an issue for them.  Waiting a month or so before you apply to clean up your credit report is a bad idea.

ACTION ITEM: Go to annualcreditreport.com right now and claim your 3 free credit reports pursuant to Federal law. If you find anything incorrect go through the dispute process and get it corrected. Do this well in advance of you applying for any loans.

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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.