Why Did My Credit Score Decrease After Filing A Dispute?

Occasionally, errors may appear on your credit report. It is important to regularly check your credit file with the national credit bureaus to catch and correct any mistakes. This helps prevent any negative impact on your credit history, especially if the errors are derogatory or related to identity theft. By challenging incorrect information included in your credit report, you are taking advantage of your rights under the Fair Credit Reporting Act. Although the credit dispute process may seem cumbersome, it is essential to ensure the accuracy of your credit report. It is worth noting that some borrowers may experience a temporary decrease in their credit score after filing a dispute. While the act of disputing information does not directly harm your credit score, there are various factors that could potentially result in a minor decrease. ¹ Source: Financial experts recommend regularly checking your credit report with the national credit bureaus. If you want to understand the impact of a dispute on your credit, it’s important to know what information is included in credit reports. Three major credit bureaus, namely Experian, Equifax, and TransUnion, are responsible for compiling the necessary information that forms your credit report. Each bureau includes four categories of information that they consider relevant to your credit risk and reliability:

Identifiable Information

This section of your credit report contains details that help identify you. It includes your name, address, date of birth, Social Security Number, and employment information you might have provided in previous credit applications. However, this section does not affect your credit scores.

Credit Accounts

When you open a new credit card account or take out a loan, lenders report it to the credit bureaus, and it will be listed in this section of your credit report. The information provided includes the account type (such as auto loan, credit card, personal loan, quick cash loans, mortgage, etc.), the date the account was opened, the credit limit or loan amount, the current credit card balance, and your payment history.

Credit Inquiries

Every time you apply for credit cards or loans, lenders request a copy of your credit report, resulting in hard inquiries on your credit report. Excessive hard inquiries within a short period of time may make lenders view you as a credit risk.

Public Records & Collections

The credit bureaus collect relevant public records, including bankruptcy filings from state and county courts. Additionally, any outstanding debts that have been transferred to a collection agency will be reflected in your credit report. Calculating credit scores is an important process that helps lenders and credit card companies assess your creditworthiness. Here is some information to help you understand how your credit score is determined:

What is a Credit Score?

Your credit score is a three-digit number, ranging from 300 to 850, based on the information in your credit report. It is widely relied upon to determine your eligibility for financial products and services.

Factors Influencing Your Credit Score:

FICO credit scores consider several factors, each with its own level of importance:

1. Payment History (35%):

Your payment history carries the most significant weight in your credit score. Consistently making on-time payments on credit cards, auto loans, and other accounts helps improve your score. Late or missed payments can negatively impact it.

2. Amount You Owe (30%):

This category takes into account how much you owe on your various accounts. A key aspect is your credit utilization ratio, which compares the amount you owe to your total credit limit. Keeping this ratio low can positively affect your score.

3. Credit History Length (15%):

The length of your credit history is also considered. Factors such as the average age of your credit, as well as the age of your oldest and most recent accounts, contribute to this portion of your score. An older and more established credit history is beneficial.

4. Credit Variety (10%):

Your credit mix plays a role in determining your creditworthiness. Having a variety of accounts, such as installment loans, retail credit, car loans, home loans, and credit cards, is important. A balanced mix reflects positively on your score.

5. New Credit (10%):

Recent activity, such as hard inquiries or opening new accounts, is taken into consideration. Multiple hard inquiries or opening too many new credit card accounts in a short period can potentially lower your creditworthiness. Understanding these factors and their respective weights can help you make informed decisions to maintain or improve your credit score. It’s always a good idea to listen to financial experts and check your free credit report annually. By regularly reviewing your credit report, you can catch any inconsistencies or inaccurate information that might have negatively affected your credit score. If you have found incorrect information on your credit report, don’t worry! Here’s how you can dispute it with the credit bureaus:

Common Mistakes to Dispute

Some common errors that need to be disputed on credit reports include:

• Mistakes in your identifiable information such as misspelled name, wrong address or phone number, or details from someone else’s report.
• Inaccurate account data, like closed accounts being reported as open or incorrect derogatory marks.
• Errors in credit limit and available credit information on your credit card accounts.
• Missing accurate information about recent changes in your credit.
• Accounts opened in your name through identity theft.

Contact Credit Reporting Agencies

Once you have identified an error on your report, the Consumer Financial Protection Bureau suggests contacting the credit bureaus that produced the report with the error. You can make a dispute online or by mail with Experian, TransUnion, and Equifax. Whether you choose to write a letter or make an online dispute, remember to include supporting documentation to back up your claims of inaccurate information. You can create a dispute online on Equifax, TransUnion, and Experian’s websites. If you prefer disputing credit report inaccuracies by mail, address your letter to one of the three bureaus using the following information:

Experian	Equifax	TransUnion
ExperianPO Box 4500Allen, TX – 75013	EquifaxPO Bo 740256Atlanta, GA – 30374-0256	TransUnion LLCConsumer Dispute CenterPO Box 2000Chester, PA – 19016

Contact the Data Furnisher

The data furnisher, which is the lender, retailer, bank, or credit card issuer providing information to the credit bureau, can also help resolve the error or derogatory mark. The CFPB advises sending your credit dispute to the data furnisher as well.

Wait for the Results

After disputing the information, you will need to wait for up to 45 days for the bureau or furnisher to investigate and notify you of the dispute results. If the disputed information is found to be inaccurate, the records will be deleted or updated. If the furnisher insists that the disputed data is accurate, you can still request that the bureau include a statement about the dispute on your credit report. Filing disputes on your consumer credit reports won’t affect your credit scores. Requesting a correction on your credit report alone will neither help nor harm your score. However, it’s important to note that the results of your dispute could potentially change the data on your credit report, which may then impact your credit score. If, for example, you have late payments or derogatory marks removed from your report as a result of the dispute, you’re likely to see an increase in your credit score. On the other hand, corrected data can sometimes lead to a temporary decrease in your score. Another scenario, if your credit report shows an open credit card account that you’ve actually closed, rectifying this error can significantly affect your credit utilization rate. Since credit utilization rate plays a significant role in determining your credit score, any changes to your total credit limit resulting from the correction may have consequences for your score. If your credit score has dropped following a successful completion of a credit dispute, don’t worry too much. With continued responsible use of credit, your score should recover relatively quickly. There are several effective ways to improve your credit scores after experiencing a temporary drop. Here are some friendly tips that can make a significant difference:

Diversify Your Credit

Consider diversifying your credit types. If you only have loans with monthly installments, it may be beneficial to obtain a new credit card. On the other hand, if you only have credit cards, exploring other financial products could help diversify your credit. A good variety of credit types might substantially enhance your credit score.

Become an Authorized User

If you currently don’t need a new credit card, you can ask your partner, a family member, or a close friend to add you as an authorized user on one of their credit cards. If they have a positive payment history, this action could immediately improve your score.

Maintain a Low Credit Utilization Rate

Your credit utilization rate has a significant impact on your credit scores. Ideally, experts recommend keeping your credit utilization ratio below 30% at all times.

Make On-time Payments

Every late or missed payment on your credit report potentially contributes to a drop in your credit score. To increase your credit score, it’s crucial to avoid making late payments on any of your accounts. While these strategies may not yield overnight results, rebuilding your credit score requires time and patience. However, if you stay committed to these practices, you will be rewarded for your efforts. When it comes to correcting mistakes on your credit report, it’s important to understand that your credit score may temporarily decrease. However, this step is crucial for ensuring that your financial profile accurately reflects your financial behavior. At Pachyy, our goal is to provide individuals with the knowledge and tools they need to take control of their credit histories and ultimately improve their financial futures. For more information, please consult the following references:

1. Does Disputing a Credit Report Hurt Your Credit Score? | Intuit
2. Can Disputing Credit Report Inaccuracies Lower Credit Scores? | Experian