I received the following question last night from a Facebook friend: “John, I want to ask a question as you’re the only person I believe regarding this. (name withheld) says in a video the an “account in dispute” is bypassed or not looked at for 30 days, and only 30 days by FICO when calculating the score. I have heard so many stories on this- is that the case?”
The answer is complicated because there is so much misinformation floating around on the web. I wrote about this extensively here.
Incidentally, that post is one of my most popular and has been shared over 2,300 times as of today. Seems like a lot of people have the same question.
Here’s exactly what happens when an item is in dispute relative to your FICO scores:
The item is, or should be, coded as being in dispute. This is accomplished by either the credit bureau or the data furnisher (bank, collector, etc) adding a two character alpha code to the tradeline, collection or public record. Whoever receives the dispute (the credit bureau or the data furnisher) is the party responsible for adding the code. That code is “XB” and it will show up on a credit report as language that reads “Account information disputed by consumer under the Fair Credit Reporting Act” or some reasonable derivative.
That code is called a Compliance Condition Code and it is a requirement of the Fair Credit Reporting Act to add it to a disputed item. If the code is not added when a dispute is received the you could have an FCRA violation. I’ve had many cases as an expert witness where the Compliance Condition Code was not added.
The Impact of the XB Code
Ok, now that we all understand how, why and when the XB code is added to a credit report let’s address the impact of that code on your FICO scores. That’s where all of the confusion and incorrect information seems to be coming from.
When ANYTHING on a credit report has the XB code associated with it FICO’s scores do NOT ignore it. That’s a myth that’s being perpetrated all over the place. FICO’s score ignore only certain aspects of the credit item, not the item entirely.
FICO’s scores do not consider the disputed and XB coded item for two categories of their scoring evaluation; the performance and debt categories. “Performance” is the category that considers the presence (or lack thereof) of negative information like late payments, charge offs, collections, etc. That category is worth 35% of the points in your score. “Debt” is the category that considers the balance associated with an item including measurements like the infamous debt to limit ratios. Other than those two scoring categories, the item is still being seen and considered by the FICO score even when in dispute and coded with XB.
The amount of time FICO treats the item as described above is dependent on how long the XB code is on the tradeline or collection or public record. If it’s there for 30 days, then it’s 30 days. If it’s there for 14 days, then it’s 14 days. If for some reason the XB code survives the end of the dispute process and isn’t removed then FICO will continue to bypass it for certain scoring categories as long as it’s on the tradeline, collection or public record.
The reason your FICO score will likely go up when an item has the XB code associated with it is because it’s not being counted against you if it’s derogatory. And, the balance of the item is also not being considered. That’s one of the reasons lenders want disputes resolved before they’ll allow loans to close. They know the score they’re seeing isn’t a true and accurate score because XB is likely causing the score to be artificially higher. Once the XB code is removed all bets are off and FICO considers the item fully.
Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognised credit expert who actually comes from the credit industry. Follow him on Twitter here.
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