The Power of the “XB” Code

One of the most important responsibilities you have is to keep your credit in the best shape possible. This means paying your bills on time, avoiding excessive credit card debt, and not applying for new credit too frequently need to become some of the non-negotiable habits you develop and maintain. But as they say from time to time…life happens.

The truth is sometimes credit problems occur even if you are trying to do everything right. Errors or fraud sometimes find their way onto your credit reports due to the actions of a third party. One example of credit problems that may occur due to no fault of your own happens when a credit bureau or creditor (aka data furnisher) places information on your credit reports which is factually inaccurate, or arguably inaccurate.

Your Right to Dispute Credit Entries

Although the credit bureaus and data furnishers have no vested interest to report inaccurate information about your accounts, mistakes absolutely can occur. A few years ago the Federal Trade Commission estimated that 1 in 5 consumers have errors on their credit reports. The good news is that when errors or mistakes do occur the Fair Credit Reporting Act (FCRA) gives you the right to dispute them.

If you wish to exercise your right to dispute under the FCRA there are several options available to you. You can let the credit bureaus know that you disagree with information contained on your credit reports by initiating a dispute online, through the mail, over the phone, or even via fax. You can dispute erroneous information with each of the 3 credit bureaus (Equifax, Trans Union, and Experian) and also with the data furnishers directly. Finally, while you certainly have the right to navigate the dispute process on your own, you can even hire a credit repair company to handle your disputes for you – for a fee of course.

What Happens to an Account When It Is Disputed?

Once a credit bureau or data furnisher receives your dispute they are required under the FCRA to perform a “reasonable” investigation into your claim. The investigation must generally be completed within 30 days (sometimes 45 days) and you must be notified regarding the result of your dispute at the conclusion of the investigation. In other words, a credit bureau must let you know whether a disputed item has been updated, deleted from your credit report, or verified as accurate.

The XB Code

After you file your dispute, and while your claim is being investigated, the disputed item is marked as being in dispute and under investigation. This is a requirement of the Fair Credit Reporting Act. To comply with this FCRA requirement a code known as a Compliance Condition Code known is appended to the disputed entry. This code is represented by the letters “XB.”

If you were to pull a fresh copy of your credit reports during an investigation you would see the presence of the XB code because the language “Consumer disputes, investigation in process” would be on the disputed account, or a reasonable derivative of that language.

The XB Code and Your Credit Score

When the XB code is affixed to an account on your credit report the account will be treated very differently by the FICO and VantageScore credit scoring systems. Specifically, credit scoring systems will ignore the payment history and the balance of the account. Essentially any aspect of the account that could be harmful to your scores is ignored.

Because scoring systems ignore certain important aspects of an account when the XB code is present, the result is that many consumers will see a temporary boost in their credit scores during an active investigation. However, before you think that you can try to game the system and dispute all of your negative accounts in order to boost your scores before applying for a loan you should know that lenders are well aware of the impact the XB code can have on credit scores as well. For this reason many lenders, most notably mortgage lenders, will not approve your loan application if you have any active “consumer dispute” notations present on your reports.