How are disputed credit accounts considered when using the TOTAL Scorecard?

Disputed Derogatory Credit Accounts
Disputed Derogatory Credit Account refers to disputed charge off accounts, disputed collection accounts, and disputed accounts with late payments in the last 24 months.  If the credit report utilized by TOTAL Mortgage Scorecard indicates that the Borrower has $1,000 or more collectively in Disputed Derogatory Credit Accounts, the mortgage must be downgraded to a Refer and manually underwritten.  

Exclusions from the $1,000 cumulative balance include: 
•     disputed medical accounts; and 
•     disputed derogatory credit resulting from identity theft, credit card theft or unauthorized use. To exclude these balances, the lender must include a copy of the police report or other documentation from the creditor to support the status of the accounts. 
•     Accounts of a non-borrowing spouse in a community property state
•     Non-derogatory disputed accounts 

Non-Derogatory Disputed Accounts and Disputed Accounts Not Indicated on the Credit Report
Non-Derogatory Disputed Accounts include the following types of accounts: 
•     disputed accounts with zero balance 
•     disputed accounts with late payments aged 24 months or greater 
•     disputed accounts that are current and paid as agreed  

If a Borrower is disputing non-derogatory accounts, or is disputing accounts that are not indicated on the credit report as being disputed, the lender is not required to downgrade the application to a Refer.  However, the lender must analyze the effect of the disputed accounts on the Borrower’s ability to repay the mortgage.  If the dispute results in the Borrower’s monthly debt payments used in computing the Debt-to-Income being less than the amount indicated on the credit report, the Borrower must provide documentation of the lower payments. 

For additional information see Handbook 4000.1 II.A.4.b.iii(B)-(C)  at

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.

Topic Number: KA-04851