Does Having a Credit Dispute on Your Credit Report Hurt Your Credit Score?

Your credit reports display information about your past financial activities, including credit card debt, student loans, automotive financing and mortgage accounts. Employers use your credit report to help decide whether to hire you, and companies use your credit history to decide whether to approve you for mortgages, loans or credit cards. Although the consumer bureaus usually add correct information to your credit report, they sometimes make mistakes.

Background

Because erroneous information can end up on credit reports, Equifax, Experian and TransUnion, the three major U.S. credit bureaus, allow consumers to dispute credit report items they believe to be incorrect. After you file a dispute with a consumer bureau, it will perform an investigation into the matter, and, if it finds the information is erroneous, it will remove it from your credit report. As of May 2011, you can file a credit dispute with any of the three bureaus at no cost.

Credit Score Effects

Filing a credit report dispute does not directly affect your credit score, according to an article by columnist Leslie McFadden of Bankrate, a consumer finance website. The FICO credit score algorithm -- which the major U.S. consumer bureaus use -- does not take disputes into account when calculating your credit rating, according to the Fair Isaac Corporation, the company that designed the FICO scoring program.

Indirect Effects

Although filing a credit dispute will not directly affect your FICO score, it can have an impact on the score. If the bureaus decide to remove a negative item, such as a collection account or missed bill payment, from your credit report, your FICO score will rise in response. If a credit bureau removes a positive account, such as a low-balance, good-standing credit card, from your report, your FICO score will likely fall instead.

Considerations

Many businesses advertise they can fix your credit score by disputing items on your credit report. Although that might work if you have bad credit that resulted from incorrect information, the consumer bureaus will not remove legitimate information from your credit report. The only thing that will remove legitimate bad credit from your report is time: It takes seven years for most types of bad credit to leave your credit report, although it takes 10 years for a Chapter 7 bankruptcy filing to disappear, according to the Fair Isaac Corporation.