How to check if you may be affected by a bad credit score from Equifax
If you took out a loan earlier this year, you might hear from your bank about an error that may have been part of their loan decision.
One of the Big Three credit reporting companies, Equifax, announced this week that a coding issue led to the company providing inaccurate consumer credit scores to lenders between March 17 and April 6. . Millions of ratings were affected, according to a report in the Wall Street Journal.
While most scores saw no material difference, Equifax said, a significant number — fewer than 300,000 — saw a change of 25 points or more due to the error. That’s more than enough to cause a different loan decision.
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Equifax said in its announcement that it is working with its customers — that is, lenders — to determine “the actual impact on customers.” A company spokesperson told CNBC that consumers who believe their loan decision has been affected should contact their lender. (How to determine this is explained below.)
The revelation also led to a class action lawsuit against Equifax in the U.S. District Court for North Georgia, according to a report by NBC News. The lawsuit seeks a jury trial for the damages suffered by the affected consumers.
Why credit score error is important
As consumers know, credit scores play an important role in determining whether you are approved for a loan or credit card and, if so, what interest rate or fees you will pay. The higher the score, the better the conditions you can qualify for (and vice versa).
FICO scores — which typically range from 300 to 850 — are what most lenders use to inform their decisions. For mortgages and autos, there are typically 20-point brackets within that range, each associated with particular loan terms, said Al Bingham, credit expert and head of mortgages at Momentum Loans.
For example, if your score is between 700 and 719, you get the same rate whether your score is 700 or 719.
“As long as Equifax’s credit score change remained within this [band]there’s no problem,” Bingham said.
Still, if the error caused the score to jump outside that band one way or the other, “it becomes an issue for rates and fees,” he said. In other words, the roughly 300,000 consumers whose scores were off by 25 points or more either received worse conditions than they should have – or they might even have been rejected altogether – or qualified for better ones. conditions than their actual score would allow.
How to Know if You’ve Been Affected by the Coding Issue
It’s unclear when consumers would hear directly from their bank or another lender if they were materially affected by an inaccurate score. A spokesperson for JPMorgan Chase, the largest bank in the United States, said: “We are working proactively with Equifax and our customers to resolve [the issue] case by case.”
If you’re wondering if you might have been affected because you took out a loan (or tried but were rejected) during the affected time period, you should be able to check your transaction documents to see if the lender provided your FICO score in disclosure forms, Bingham said.
Be aware that lenders treat different consumer loans differently when it comes to the information they acquire to make a lending decision. For auto and personal loans, banks typically only request a score from one of the big three credit reporting companies — Equifax, TransUnion or Experian — Bingham said. So if you don’t see Equifax in your documents, you’re not affected.
Keep in mind, however, that even if you find out Equifax provided your score to your lender, that doesn’t mean the number was inaccurate enough to change the terms of your loan.
Added complication for mortgage applicants
For mortgages, it could be more complicated to determine the impact of a bad score on the loan conditions to which you are entitled.
Lenders check the FICO score of these three companies and use the middle one — and that’s what’s disclosed to the mortgage applicant, Bingham said.
“If Equifax’s score was so compromised that it dropped or rose below or above any of the other FICO scores, that’s a bigger challenge,” he said. “This means the Experian or TransUnion score was used and should not have been.”
Or, he said, Equifax’s inaccurate score could have been the middle one used by the lender.
“It’s going to be very difficult for any lender or consumer to correct Equifax’s FICO score. [that was used]”Bingham said.