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Increased scrutiny of loan applications means that getting a mortgage loan today can be a nail-biting experience. For some, there is that heart-stopping moment when the loan officer says, “There is a problem with your credit.” What if that “problem” is a mistake and you don’t have a lot of time to fix it? Reader Kathy writes:

We are trying to refi our home for a lower interest rate and are being penalized about a 1/2 percent because of my credit score. My credit is…almost flawless. Other than real estate, have used less than 10% of available credit and all credit cards are paid monthly.

I had an auto payment with (a bank) for years and it was paid in full last year. In May of ’06 there was some sort of snafu by the bank and on my report it was noted as a 30 day late. It was an error. I have the original letter from the Vice President who is no longer there that it was an error and would be removed. His executive secretary is still there and is trying to help as she remembers the situation and also has the letter on file. Problem is they are using a different credit reporting agency, she says. She is a great gal but sounds lost as to how to fix this. Any suggestions other than contacting all three credit agencies directly? And is phone or the computer or mail best for the fastest results?

When an important loan like a mortgage is on the line, how do you fix a credit report quickly? I turned to four industry pros to help Kathy navigate this process.

Go To The Source

Norm Magnuson, vice president of public affairs for the Consumer Data Industry Association, was the first to weigh in. He said:

The most timely method (for) having data corrected in the credit report is going directly to the lender that reported it. They simply need to notify the consumer reporting agency (CRA) that the account information needs to be changed. If the consumer goes through the CRA, the data in question must be verified within 30 days. On average, 80 percent of the time the CRA receives a response back from the lender within 10 days.

Susan Henson, senior director, public relations for Experian suggested the following:

If a consumer has a legitimate proof document from a creditor they can submit that document to us when they initiate a dispute. Also the creditor can submit proof documents to us through a system called the profile maintenance system. Either way, we review these documents to verify the account details and if, indeed, the information is not accurate it will be removed.

She recommends consumers use their online dispute process which she says “is very fast. Although by FCRA mandate we have 30 days to resolve disputes, the vast majority are resolved in 14 days or less.”

Will I Lose My Chance to Refi?

Are there any shortcuts for correcting a credit report quickly when a mortgage loan is on the line? Joe Kelly, president of Arcloan.com shared this advice:

First of all, a single 30-day late payment from six years ago should not be causing her any issues on applying for a mortgage now. I have no idea why a lender would be telling her that is an issue. I suspect there is more to the story or she is misunderstanding the lender she is working with. Conventional mortgages require no late payments in the past 24 months. FHA and VA require none in the past year. Six years ago is ancient history. Perhaps the issue is really other items.

Secondly, she has a letter from the creditor stating it was a mistake. If it is showing on her credit report it is because that bank is reporting it that way. If they are still in business she should get the bank to correct their record and report it as not late. If they are not in business, or not responsive, she should be able to provide that letter to whatever credit agency is pulling her report for her mortgage (i.e. Kroll). They should be able to use that to remove it from the report being used by the mortgage company she is applying with. This will not permanently remove it from her record, however. It would still show up if someone else pulled her credit but it would solve the issue with her current (mortgage loan) application.

Third, she can send a copy of the letter to the three credit bureaus and request it be removed from her reports. That’s obviously not a “quick” fix.

Fix It or You’ll Hear From a Lawyer

I asked attorney Robert Brennan whose firm handles credit damage and identity theft cases whether a consumer in this type of situation may have legal action against the bank for failing to correct the mistake. He replied that he would “need to see some of the internal paperwork between the bank and the credit bureaus to answer this question.” But he went on to describe the dispute procedure in more detail, along with advice for others who may be experiencing similar frustration:

When a furnisher, such as the bank, originates modifying or deleting credit information, it transmits [a notice] electronically to the bureaus.

The bank also has to block or suppress the derogatory in its electronic batch transmission that it sends to the bureaus, likely once each month. If the bank sends out [a notice] but does not also suppress the derogatory in its batch transmission, it risks that the derogatory will be suppressed or blocked for a single month, and then reappear the following month.

There could be responsibility on the credit bureau end as well. When a credit bureau receives [a notice] directing that it block or suppress a derogatory, it is supposed to make that a permanent change in the consumer’s credit file. In theory, the credit bureau is supposed to block or suppress the derogatory permanently such that it would not change if a new batch transmission came in with the old derogatory information, but this does not always happen.

I would also need to see the exchange between the bureaus and the bank in response to the consumer’s dispute to the bureaus. The dispute to the bureaus will result in the creation of an “Automated Consumer Dispute Verification” sent from bureaus to bank…. The bank is supposed to reinvestigate and correct, modify or delete any false, inaccurate or unverifiable information once it receives an ACDV form from a credit bureau, all within 30 days. It’s likely a shared-responsibility situation.

If I were representing the consumer, I would have him/her write a letter to all bureaus and to the bank, directing that they IMMEDIATELY correct the false credit reporting or face legal consequences. I’d send the letter certified but I’d also fax it. (In a list of tips for disputing credit report mistakes on his website, Brennan discourages consumers from disputing items online or by phone.) If the consumer is in a position to drop off a copy at the bank personally, I would do that as well, with a witness. Attach a copy of the earlier letter from the bank directing that the derogatory be suppressed.

The bank and the bureaus have the ability to act very quickly when they want to, but they generally will not act quickly unless faced with legal action.

Next Time, Buy Time

Of course, I wouldn’t be doing my job if I didn’t encourage Kathy and other readers to check their credit reports and scores at least 60 days before trying to obtain an important loan like a mortgage or auto loan so there will be ample time to deal with mistakes. You can get a single copy of your credit report for free each year and you can monitor your credit scores for free using Credit.com’s Free Credit Report Card.

Image: Lenore Edman, via Flickr

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  • http://www.credit.com/ Credit.com Credit Experts

    Wendy — if the collection isn’t accurate, you should dispute it. The fact that it’s showing up in your credit reports will have an impact. For detailed instructions on how to file a dispute and writing an effective dispute letter, this should help:

    A Step-by-Step Guide to Disputing Credit Report Errors
    8 Rules of an Effective Credit Report Dispute Letter

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  • Kathy Worley

    Hi, I am Kathy Worley, and I was the person in the article that Gerri referred to. Interesting as the comments were, it truly demonstrates that no one has all of the answers about how credit works. One mortgage broker commented that a 30 day late should not have a bearing on my score and that there could be other issues. Wrong. Not only was it years old, it was paid off! Older items in my case appeared to be just as troublesome despite the mortgage brokers opinion. There was in fact one other item on my report that was also incorrect and that was actually older and and is due to be removed in less than a year, on an otherwise flawless credit report. Because the second issue was actually from a dispute from my business, it was more tedious to remove. My credit reflects a person who never made a late payment and who has most of her credit available to her. And yet, my scores varied from a score in the 600’s to the high 700’s. I was informed by B of A and Wells Fargo that my scores would negatively effect my interest rate on our home refi. I asked them directly, after they commented on how my score would effect the rate,- do you actually read the reports? I am of the opinion that they use a credit report as a tool to justify a higher rate. As old as these 2 items were, it is evident that credit is evaluated by some sort of system, not by humans. And the system (FICO) is seriously flawed. When I called the bank who misreported a 30 day late from years prior, they recommended I file an online complaint for the fastest results. After speaking with Gerri and learning that the bank likely had the ability to speed up the results, I called the bank again and firmly insisted that they also contact the credit agency. They finally acquiesced and I recieved notification within 2 weeks that the error was corrected, although it will be additional time for all to be updated. Credit reports are obviously necessary, but clearly come with many failings.

    • Gerri Detweiler

      Thanks again Kathy for sharing your experience and I am glad you were able to clear it up finally. What a pain in the meantime!

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