Many credit repair companies advise their clients to dispute accounts on their credit report, telling them the accounts will be removed from their report. That is horrible advice. Here's why:
When you dispute a credit account, lenders are now required to underwrite loans manually, rather than using the software that allows higher debt-to-income ratios. The underwriting software frequently allows debt-to-income ratios as high as 45% for conventional loans and as high as 50% for government (VA and FHA) loans. However, if a borrower is approved for a loan by the software with a 45% or 50% debt-to-income ratio and they have disputed an account, the underwriting guidelines say that the debt-to-income ratio must be lowered to:
- 36% for conventional loans
- 41% for VA loans
- 43% for FHA loans
This means that a borrower may not be able to qualify for the mortgage they thought they could qualify for.
In addition, if you dispute an old, unpaid collection account, the collection company will now know you are trying to improve your scores, and they may start trying to collect from you again. Your credit scores will drop.
So stay away from anyone who advises you to dispute credit accounts!
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