Disputing a Credit Report Before Applying for an FHA Mortgage

September 5, 2024

When you apply for an FHA mortgage, lenders evaluate your credit reports and scores to decide on approving your loan application. An applicant's credit history paints a picture for the lender who needs to know your level of financial responsibility.

Some borrowers don't read their credit reports before applying for home loan pre-approval or pre-qualification. If your lender’s eyes are the first to see that report, you may have difficulty getting approved for the loan, depending on the circumstances.

Why review your credit reports? In addition to the usual information about your credit activity over time, your report may contain outdated or inaccurate information. And that information will need to be challenged.

Disputing Errors on Your Credit Report

Discovering inaccuracies in your credit report takes time. You'll need to review credit reports from all three major credit agencies. If you find problems, the Fair Credit Reporting Act (FCRA) empowers consumers to challenge errors found in their credit reports.

How long does it take to resolve such disputes? The timeline may vary based on several factors, including the complexity of the errors and how fast each credit bureau responds to you.
Here are some key milestones in the process:

• Initial Dispute
  The journey begins once you identify an issue in your credit report and file a dispute with the credit bureau. You can typically dispute errors online, by mail, or over the phone. The credit bureau must investigate. This is typically done within 30 days.
• Investigation and Verification
  During the investigation, the credit bureau will contact the lender or creditor to investigate. If the issue is confirmed, the credit agency must correct it.
• Resolution
  If the investigation leads to a correction, the credit bureau will correct the report and issue you a revised copy. If the dispute is not resolved in the borrower's favor, the credit bureau will not modify your report. 
• Accurate Data
  You cannot have accurate information removed from your credit report if it is still valid. You can add a consumer statement to your report explaining the dispute in such cases.
• Escalation
  Are you dissatisfied with the credit bureau's response? Take your complaint to the Consumer Financial Protection Bureau. You can also hire a lawyer.

Typically, there's a 30-day timeframe for the initial investigation, but the dispute resolution process can extend beyond this period, especially if the dispute involves complex errors or requires additional verification.

Protect Your Credit

Getting started on credit issues as early as possible is crucial for new house hunters. Here are some actionable recommendations:

• Regular Credit Monitoring
  You should regularly review your credit reports from the major credit bureaus (Equifax, Experian, and TransUnion).
• Free Credit Reports
  You are entitled to one annual free credit report from each bureau through AnnualCreditReport.com. You can promptly identify errors or signs of identity theft by monitoring your credit reports.
• Timely Bill Payments
  Pay all bills on time. That should include credit cards, student loans, and auto loans. Automatic payments or recurring reminders to pay can help you stay on track.
• Debt Reduction
  A high debt-to-income ratio can be a red flag for lenders. Before applying for a mortgage, work to reduce existing debts. This will improve your DTI and enhance your overall financial health.
• Avoid New Credit Applications
  Do not apply for new credit when actively planning to buy a home. The hard credit inquiry isn't the only problem. Adding more debt to your financial outlook is also problematic ahead of a home loan.
• Address Existing Credit Issues
  If you have late payments or collections on your credit report, address them before applying for a mortgage. This may involve negotiating with creditors, setting up payment plans, or seeking professional credit counseling.
• Beware of Credit Repair Companies
  While credit repair companies can assist in disputing errors on your credit report, exercise caution when selecting a company. Research your options carefully.

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