One of the rights afforded to us under the Fair Credit Reporting Act is the ability to challenge information on our credit reports with which we do not agree. I addressed several methods of disputing credit entries in this Mint article.
The dispute process is free and normally takes less than a month. There is some confusion, however, about the impact of a credit dispute on your credit scores.
When you file a dispute with the credit reporting agencies they are required by the Fair Credit Reporting Act to show the item as being “in dispute.” They accomplish this by placing the code “XB” on the offensive credit entry.
The XB code is what’s referred to in my world as a “Compliance Condition Code.” When it’s placed in your credit report it reads as, “Consumer disputes, investigation in process” or some derivative of that wording.
Essentially, it means that the credit bureaus received your dispute and are actively investigating the information.
The Impact of “XB”
When the XB code is present on an account, a public record, or a collection, the FICO scoring system treats it differently than it would if the account was not actively in dispute.
This is where the confusion comes from. The FICO score will not allow an item that is actively being disputed to harm your score. How does it accomplish this?
FICO will not consider an item with the XB code present for either its Payment History or Debt related measurements. So, if you have a credit card account with late payments and you’re disputing those late payments, the FICO score will choose to not consider those late payments.
And, if you have a credit card account with a large balance and you’re disputing the balance, the FICO score will not consider the balance.
The fact that the FICO score is temporarily ignoring these items can cause your scores to be higher. Having said that, the score improvement is temporary and can’t be used to “game” the system.
If the item has been verified as accurate, then the credit bureaus are no longer investigating it. That means the credit bureaus will remove the “in dispute” language by removing the XB code.
Once the XB code is gone, then the item is fair game in the eyes of FICO because it has been verified and is, arguably, accurate.
This isn’t new news and lenders also know this, which is why you can’t just go and dispute everything that’s bad on your credit reports, have your FICO scores shoot through the roof, and then go apply for a loan.
Most lenders, especially mortgage lenders, require that all items DO NOT have the “in dispute” language before they’ll process an application to closing.
They realize the score that has been calculated is likely not the consumer’s most accurate score because the model is ignoring certain aspects of the credit report.
And FICO isn’t the only scoring system that has this specialized treatment of items that are currently being investigated.
According to Sarah Davies, Vice President of Analytics and Product Management at VantageScore Solutions, “While an account is documented as ‘Account information disputed by consumer under the Fair Credit Reporting Act (XB)’, it is temporarily excluded from consideration by the VantageScore model.
What if the item is still being disputed?
If you were not successful getting the offensive credit entry removed or changed, then you can still have it shown as being “in dispute” for as long as it remains on your credit reports.
But, that is not the same as an item that’s in dispute AND being investigated.
If you still disagree with an item you can have language added to your credit reports showing as much. But, that’s not going to cause the score to ignore it for Payment History and Debt measurements.
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. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.