Under federal law, you’re allowed to dispute information on your credit report both with the company that reported the information and with the reporting bureau that recorded it. There’s no fee for filing a dispute, and the credit reporting bureaus may make changes based on the information you provide.
This can be great news if your credit report changes in your favor and your credit score gets a boost. However, your credit score may take a hit if the corrected data reveals previously unknown or updated unfavorable information in your credit history.
Here’s a closer look at why your credit score may have dropped due to a dispute and other common reasons.
Table of Contents
Key Points
• Disputing information doesn’t directly lower your score, but if the corrected data reveals something less favorable, your score may fall.
• Your payment history, including late or missed payments, and derogatory marks, such as collections, bankruptcies, or foreclosures, are major drivers of a credit drop.
• An increase in the amount of available credit you are using, measured by your credit utilization rate, can hurt your score.
• When reviewing your credit report, look out for things such as errors in your personal information, accounts that you didn’t open, and account status errors.
• If you spot a mistake on your credit report, you may have to file a dispute with each credit reporting bureau.
Can a Dispute Hurt Your Credit Score?
When you dispute your credit report, it’s important to understand that the dispute itself does not cause your credit score to drop. In other words, you aren’t punished for questioning your credit report. However, investigations during the dispute could have a negative impact. For example, if it’s found that you have a lower credit limit than previously reported, your credit score could take a hit.
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Common Reasons for Credit Scores to Drop
As you manage your credit score and work to build credit, there are various reasons your score may drop. Here’s what to look out for.
Recommended: What Credit Score Is Needed to Buy a Car
Late or Missed Payment
Your payment history — whether you have a track record of paying off your debts on time — is a big part of how your credit score is calculated. In fact, it makes up 35% of your FICO score, which is calculated by the Fair Isaac Corporation. Your score will likely fall if you make late payments or if you miss payments entirely.
Derogatory Mark on Your Credit Report
A derogatory mark on your credit report is a negative item that indicates you didn’t pay back a debt according to the terms you agreed with your lender. Typically, these marks remain on your report for 7-10 years. Derogatory marks include Chapter 7 or Chapter 13 bankruptcies, missed payments, debts in collection, foreclosures, and repossessions.
Change in Credit Utilization Rate
Your credit utilization rate indicates how much of your available credit you are currently using. You can find it by dividing your total current debt by your total available credit limit across all revolving credit accounts. A high utilization rate may suggest that you’re overextended and cause banks to question your ability to pay off your loans. That’s why the amount you owe makes up 30% of your FICO score and why a higher utilization rate can hurt your score.
Reduced Credit Limit
Your credit limit has an impact on your credit utilization rate. If your limit is reduced, your utilization rate could increase, hurting your credit score.
You can ask one of your credit card companies to raise your credit limit. They’re typically happy to assist as long as your account is in good standing.
Closed Credit Card
The length of your credit history comprises 15% of your FICO score. When you cancel credit cards — when consolidating credit card debt, for example — you may be reducing your credit history. You could also be reducing your credit mix, which makes up 10% of your FICO score.
Recommended: 10 Credit Card Rules You Should Know
Paid-Off Loan
Similarly, paying off a loan might have a slight negative effect on your credit score because it can reduce your credit history and credit mix. That said, it could also have a positive effect on your record if it reduces your credit utilization rate.
Multiple Lines of Credit Opened or Applied For
New credit accounts make up 10% of your FICO score. If you open several lines of credit in a short period of time, it can indicate to banks that you may be at greater risk of defaulting on your loans. As a result, new lines of credit can lower your credit score.
Even applying for new credit can hurt your score. When you apply for a credit card or loan, your lender will make what is known as a “hard inquiry” to view your credit report. Hard inquiries can have a negative effect because seeking new credit may be seen as a greater risk for lenders.
Checking your own credit doesn’t lower your score. This is considered a “soft inquiry.”
Mistakes on Your Credit Report
Mistakes on your credit report can lead to a lower score. That’s why it’s important that you monitor your credit report regularly and report errors to the credit reporting bureaus as soon as possible. You can request a free credit report from each of the credit reporting bureaus — TransUnion, Equifax, and Experian — once a year.
Identity Theft
Monitoring your credit report is also a good way to catch fraudulent behavior. If you’ve been subject to identity theft, bad actors may have used your personal information to open fraudulent accounts, which could negatively affect your credit score. Report these accounts immediately.
Types of Credit Report Errors to Look Out For
When reviewing your credit report, look out for the following:
• Personal information errors: Your name, phone number, address, and other personal details
• Accounts that belong to another person with the same name as you
• Accounts that you didn’t open, likely to be fraudulent accounts
• Account status errors: Closed accounts that are reported as still open, accounts incorrectly reported as late or delinquent, incorrect payment information, and the same debt listed more than once
• Balance and credit limit information that is inaccurate or out of date
Correcting Errors on Your Credit Report
If you spot a mistake on your credit report, you can file a dispute with the credit reporting bureau. The mistake may be on your credit report with each bureau, so you may need to file a separate dispute with each.
You’ll need to file your dispute in writing and use the credit reporting bureau’s dispute form if they have one. Include documents that support your dispute, and be sure to keep a record of what you send.
Recommended: What Is The Difference Between TransUnion and Equifax
The Takeaway
Disputing information on your credit report helps ensure that your credit score is as accurate as possible. You won’t be penalized for filing a dispute, though your credit score may drop due to information arising from your contest.
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FAQ
Why did my credit score go down for no reason?
Your credit score likely dropped for a reason. A creditor may have reported new information, or there could be a mistake on your credit report. Fraudulent activity can also affect your score.
Why did my credit score drop after filing a dispute?
Your credit score may have dropped if information arising from the dispute lowered your score. You are not penalized for filing the dispute itself.
Does losing a dispute hurt your credit?
Losing a dispute does not necessarily hurt your credit. However, your credit may remain unchanged if the information you were hoping would boost your score is rejected.
Is there a fee for filing a dispute?
There is no charge for filing a dispute. Under federal law, you can dispute information that shows up on your credit report both with the company that reported the information and with the reporting bureau that recorded it.
Can I check my credit score?
You can request a free credit report from each of the credit reporting bureaus — TransUnion, Equifax, and Experian — once a year. Checking your credit score is important for monitoring your financial health.
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