In August, the news broke that a temporary error in Equifax’s coding had resulted in erroneous credit scores being sent to lenders. It wasn’t the first time an error like this impacted consumers.
Several years ago, a similar error at Experian impacted many consumer credit scores. The Experian error was quickly identified, in part because consumers with credit monitoring got alerts that their credit utilization had skyrocketed. In fact, what had happened was that credit limits had accidentally been truncated, making it appear that many credit card accounts had two-digit credit limits. That meant a consumer who was using $100 of a $1300 credit limit and had great (low) credit utilization suddenly saw their utilization shoot up to more than 100%, as the balance read “$100 of $13.”
The Equifax error wasn’t quite as straightforward, and so many consumers didn’t realize their scores were wrong. The problem lasted from March 17 to April 6. But, despite Equifax having noticed and corrected the problem by early April, begun informing lenders in May, and mentioned it at an investor conference in June, most people first heard about it when Equifax put out a statement in early August.
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What You Don’t Know about Credit Monitoring Can Hurt
Many consumers noticed the older Experian error quickly, because one of the key factors in credit scoring–credit utilization–was impacted dramatically. That didn’t happen with the Equifax error. That’s likely at least in part because the credit scores provided by consumer credit monitoring platforms don’t always match up with the ones credit reporting agencies send to lenders.
For example, personal finance giant Credit Karma shows credit scores calculated using the VantageScore 3.0 model. But, that’s just one of several ways credit scores are calculated, and VantageScore isn’t the most popular. In 2021, Forbes reported that about 90% of consumer credit decisions were based on FICO scores, which may differ from a score calculated using VantageScore 3.0 or 4.0.
In other words, the credit score you’re monitoring may be different from the one your creditors see when reviewing your application. That can trip you up in the application process and can make it difficult to know when something has gone awry, like the Equifax coding error.
What Went Wrong With Equifax Credit Scores?
Equifax described the problem as a “coding error,” and said it “impacted how some credit scores were calculated.” The exact number of consumers affected is unclear. Equifax initially said about 300,000 credit scores had been impacted. However, some news reports suggest that millions of credit scores were mis-reported during that three-week period.
If you didn’t apply for credit between March 17 and April 6, you probably don’t have to concern yourself with the glitch. It’s been corrected. But, what if you did apply for an auto loan, mortgage, credit card, or other credit during that period?
Not Everyone Who Applied for Credit between 3/17 and 4/6 Was Affected
Even if you made a credit application while the Equifax algorithm was broken, you may not have been impacted. There are a few reasons you may not have seen any negative consequences:
- Not all lenders rely on Equifax credit scoring for their lending decisions. If your lender pulled only your Experian or TransUnion report and score, this glitch would have had no impact on you.
- Equifax says most people’s scores weren’t affected. If that’s true, then your lender may have received accurate information from Equifax.
- Depending on your score, small variations in your credit score may not have been sufficient to result in a denial, or even to impact your rates.
But, it’s also possible that you were denied credit or are paying higher interest rates because of the error. Equifax says it’s been working with lenders to provide updated information, but there’s been no widespread notification of consumers whose scores were reported inaccurately. And, most lenders haven’t announced any clear plans for correcting erroneous decisions. Some have made vague statements about working with customers who express concern–meaning the burden is on the consumers to reach out to the lender and seek solutions if they feel they were wrongly denied or are paying too much.
Next Steps if You Believe You Were Wrongly Denied or Overcharged
If you applied for credit between mid-March and early April and were denied credit, you should have received a letter from the lender explaining the factors leading to the denial. If one of those factors was your Equifax credit score, you may want to reach out to the lender to explore your options. For example, if you’re still in the market for the loan, you may be able to reapply. If you paid an application fee, the lender may agree to waive the fee for your new application. But, don’t expect lenders to volunteer that sort of accommodation: ask.
If you’ve already secured a loan from a different source or simply lost out on an opportunity, the resolution may be more complicated. In that situation, the lender won’t be able to assist you. However, you may be able to pursue compensation from Equifax.
A class action against Equifax was filed just days after the credit reporting agency made its announcement. The lead plaintiff in that case was forced to seek auto financing from a more expensive source after the unexpected dip in her credit score disqualified her from a loan she’d prequalified for. She ended up paying more than $150/month more to finance her vehicle.
A borrower who was offered higher interest rates by the original lender due to the erroneous credit score might have a similar claim. However, in this situation you may have additional options. For example, you may want to contact the lender and ask them to review your application in light of the corrected score and adjust your loan terms accordingly. Depending on the type and amount of the loan, a higher interest rate can cost you hundreds, thousands, or even tens or hundreds of thousands of dollars across the life of the loan.
The bottom line is that at this point–months after discovery of the error–neither the credit reporting agency nor most lenders appear to be getting proactive about helping consumers who were impacted by the error. If you were hurt by the error, it will likely be up to you to push for a solution.