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Know Your Rights: What To Do When Credit Report Is Wrong

Any savvy consumer knows they should check their credit report regularly, after all, the financial impacts are tremendous. But what happens when the results show something that just isn't accurate?

One day, Bruce McClary, director of media relations for ClearPoint Credit Counseling Solutions, found himself in just that situation, on the hook for a cell phone bill that wasn't his.

"A collection notice was mailed to my parents' address," McClary says. Someone had apparently stolen his identity, using his personal information to ring up charges. And so, in addition to dealing with police and the creditor, McClary had to clear his credit report of the black mark for the unpaid bill. Because he knew what to do, he soon had a clean report in hand.

Let's look at how to do that yourself, and what rights you're guaranteed in the process. With a little information, and some expert advice, you'll be equipped to tackle any credit report inaccuracies in your future.

Your Legal Right To Dispute

dispute-credit-score-2 The Federal Trade Commission, in the Fair Credit Reporting Act, spells out your rights in the matter of disputing credit reports. It's a fairly straightforward situation.

If you identify information in your file that is incomplete or inaccurate, you notify the consumer reporting agency in question. The agency must investigate, free of charge, except in cases that it can prove a frivolous dispute.

Barring additional developments during the investigation, within 30 days of receiving your notification, the agency contacted must either identify the information as disputed or delete it from your record.

The Process And How It Works

You start a dispute by writing a letter to the credit reporting agency. Along with the letter, include the report that contains the erroneous item, circling it to make it clear.

Send one letter "to each of the credit reporting agencies where errors were discovered," McClary says. "Multiple accounts from a single reporting agency can be included together in a single dispute letter."

"Copies of all supporting documentation should be attached," he says. "Original documents should not be mailed! Disputes should be mailed using certified mail, with return receipts requested in order to verify delivery."

In theory, the agency confirms the error you've pointed out, corrects it, and sends back to you a letter that advises you of the change they've made.

In practice, your battle may be more uphill than that. We turn to the outcomes, and how to work with them when they're not so simple.

Outcomes (And Appeals)

dispute-credit-score-3 What if your dispute is rejected?

"If the dispute is unsuccessful, the consumer can make an appeal directly to the creditor," says McClary. "If that also proves to be unsuccessful, a written statement of the dispute can be added to their credit file upon request and for a nominal fee."

But here's a caution: the statement of dispute can complicate later loan applications.

A number of lenders have created new directives around statements of dispute. In at least the cases of Fannie Mae and FHA, "you have to have the borrower go back and get that disputed account removed from the credit report," says Bill Parker, a senior loan officer for Gencor Mortgage, Inc.

"I had one client, he had a dispute from 2004, nine years ago," Parker says. "It was a small amount…like a medical bill or something, and he said [to the creditor] 'hey, that's not the way it went', and then he just forgot about it. But we had to go back, go through the credit reporting agency, write them a letter to indicate he was no longer disputing it."

It's a catch-22, according to Parker, when consumers exercise their rights. But it's also a word to the wise: before you approach a mortgage lender or a major loan provider, consider what to do about any statements of dispute you've placed on your record.