Equifax problem shows why consumers need their real credit score

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Hopefully, a huge mistake by Equifax will lead to something consumers should have access to for free – the exact credit scores that lenders use to determine their creditworthiness.

Equifax, one of the three major credit bureaus, acknowledged last week that between March 17 and April 6, a coding issue resulted in a possible miscalculation of the information used in the credit model calculations.

The credit bureau said the issue was resolved on April 6 and credit reports were not changed as a result of the issue. Only a small number of consumers may have received a different credit decision due to the coding issue, the company said in a statement.

But then came this revelation.

“Our data shows that fewer than 300,000 consumers experienced a score change of 25 points or more,” Equifax said. “Although the score may have changed, a change in score does not necessarily mean that a consumer’s credit decision has been negatively affected.”

Yes, but if some consumers’ scores dropped 25 points in those three weeks, that could have led to a much more expensive or declined loan.

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Suppose a lender uses the FICO scoring model in which credit scores range from a low of 300 to a high of 850. A credit score that would have been 700 but was incorrectly reported as 675 could have landing a borrower in a pricing tier that ultimately resulted in a higher interest rate.

“We are working with our customers to determine the true impact on consumers,” the company’s statement said.

“For consumers who attempted to obtain credit between March 17 and April 6, 2022 and believe their decision may have been affected, Equifax advises them to contact the lender for more information,” a door said. -word from Equifax in an e-mail.

If they haven’t already, the Consumer Financial Protection Bureau (CFPB), which oversees the major credit bureaus, should investigate the matter.

“We will decline to comment or confirm any investigation,” an agency spokesperson emailed.

Credit bureaus have attracted more than half of consumer complaints to the CFPB over the past two years

Along with Equifax needing to be more transparent about what action it plans to take to help affected consumers, this recent mistake is a good time to renew the call that we deserve free access to the same credit scores as lenders get.

You might be thinking, “Hey, I can get a free credit score.

It’s true that credit card companies, banks, credit unions, and credit monitoring services now routinely provide consumers with free scores.

But what you might not realize is that when you check your credit scores, you don’t necessarily get the same score as your lender.

Equifax explains the difference this way: “What you typically see are educational credit scores, which means they are meant to give you an accurate picture of your scores for informational and tracking purposes. Although they are a good way to assess your credit rating, you may not see the exact same numbers as your lender.

Your score may vary depending on the scoring model used and the credit report you access to generate the score.

There’s the FICO credit-scoring juggernaut, the scoring system most used by lenders.

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But even scores under the FICO brand can vary. FICO has updated its scoring model several times. But this does not mean that lenders are using the latest versions.

In 2006, VantageScore was created by the three credit bureaus — Equifax, Experian and TransUnion — to compete with FICO. It also varies from 300 to 850.

A high score, whether it’s FICO or VantageScore – along with other factors considered by lenders – can put you in a tier that translates into the best loan deals. Even a small drop in your score can push you into a less desirable loan category, reducing the amount you can borrow and increasing the interest and fees you pay.

I regularly pull my “education” credit scores. All institutions using FICO put my credit at a perfect 850.

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But at my credit union, I have access to two different scoring models. We use FICO Score 9 based on data from my Equifax credit report. The other uses VantageScore 3.0 based on my TransUnion credit report. The VantageScore report says my score was 832 as of August 1.

All these different scores confuse consumers. It also puts them at a disadvantage in detecting a miscalculation like the one made by Equifax.

If you’re pulling your free credit scores just for educational purposes and you see that you’re generally in the 700+ range, you might be overconfident that you’re going to get a good deal. But that may not be the case if the score a lender receives is lower, pushing you into a less favorable pricing tier. You may not be inclined to question the difference after the lender points out to you that what they pulled was your “true” score.

I’ve spoken to consumers who pulled their free scores before applying for a loan. They thought they were in good shape, only to find the lender’s score was much lower. But they were already at the car dealership and overly motivated for their new car to back out of the purchase.

Florida-based law firm Morgan & Morgan has filed a class action lawsuit against Equifax for allegedly providing inaccurate credit scores.

The class representative, a resident of Jacksonville, Fla., alleges she was denied a car loan in April after the report provided by Equifax to the dealership showed an inaccurate credit score of 130 points. As a result of the error, the borrower is now paying $154 more for his auto loan per month, according to the lawsuit filed in U.S. District Court for the Northern District of Georgia.

“We believe that many of those affected – some of whom may still be unaware of what happened – have suffered serious financial consequences,” according to a statement from Morgan & Morgan attorneys John Morgan and John Yanchunis.

Knowing exactly what a lender will see can give people pause. They can wait to apply for a loan until they can improve their credit score.

If your score is great – in the 700s and over 800s – small variations won’t matter. However, if you’re barely hanging within a certain credit range, a lower score can have a big impact on what you pay for credit or your eligibility.

Why It’s So Hard To Fix Errors On Your Credit Report

Consumers have the right to get the same information as lenders so they can make the best decision about when to apply for a loan.

It has been almost 18 years since the Fair Credit Reporting Act required that consumers, upon request, receive a free copy of their credit report once every 12 months through AnnualCreditReport.com. (At the start of the pandemic, bureaus began offering free weekly credit reports online and have continued to do so.)

Just as consumers have fought for free access to their credit reports, we have long awaited the same access to the accurate credit scores used by lenders. Equifax’s coding issue should be the nudge needed to make this happen.

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