Dispute Letter Harming Credit? (Ann Arbor)

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Okay, I can't 100 percent vouch for this because I haven't seen the agreement, but here's the story;

About a month ago I got an email from someone inquiring about a possible home loan, noting that their credit was bad but they were working on getting it fixed. It seems the wife had a bankruptcy 5 years ago due to a severe injury which kept her from working. Then about a year and a half ago her husband was laid off and they experienced late payments yet again.

But that's not the story.

The story is that she was waiting on their credit scores to improve as they're working with a lawyer who is writing letters each month to the credit agencies disputing her negative items on the reports and charging her $60 per month until all the negative items have disappeared.

I shot her an email back that said to forget about the letter writing campaign. FICO scores don't read letters; they read activity on your credit accounts. That made sense to her she said because her scores were actually worse than when she started with this lawyer-type.

Oddly enough, I was speaking to a Realtor buddy just this past Monday and he gave me a heads up on someone who wanted to buy one of his listings and he referred them to me. That night I got an email from that referral.

From the very same lady.

I called the customer, not yet realizing it was the same person, and we discussed her situation. It began to become very familiar when finally she said, "You know, you and I talked about a month ago. I'm the one with the lawyer who is writing all those letters."

I immediately remembered, and asked if I could see a copy of her credit report. She faxed it to me and I could see multiple accounts with the comment inserted, "Consumer Disputes: Under Investigation."

What the lawyer was disputing was in fact erroneous entries on accounts that should have been listed as discharged in the original bankruptcy but anyone who routinely reviews credit reports like I do will tell you that nearly every credit report with a bankruptcy listed will be filled with these sorts of errors: items that appear as outstanding collections when they should be listed as "Discharged in Chapter 7 Bankruptcy."

The lawyer was messing her up in two ways but probably didn't know it.

1: Disputing old information with explanation letters does nothing for a score and

2: Opening up dormant accounts that are several years old only serves to breathe new life into an account that will begin to damage the credit score all over again.

Sort of like a Credit Frankenstein.

Credit scoring pays close attention to the recent two year history and little if any attention to things that are four or more years old. The disputes were actually doing more harm than good.
Dispute letters and credit reports are "old school" in credit terms.

If you or someone you know has such "credit repair services" in place or are considering them, be wary of their effect. Something that you thought might help your situation might in fact be preventing credit repair from taking place ... or worse, hurting your credit scores all the more.

Written by David Reed

David Reed, a veteran Mortgage Banker, successful Real Estate Consultant and author of Mortgages 101: Quick Answers to Over 250 Critical Questions About Your Home Loan, Who Says You Can't Buy a Home!, and Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You, is a Columnist and Contributing Editor with San Diego-based Mortgage Originator Magazine. Reed is President of CD Reed Mortgage Bankers, Austin, TX and is a Past President of the Austin Mortgage Bankers Association.

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