Credit Score Glitch – Why It’s Important to Keep an Eye on Your Credit

Credit Score Glitches. Why it's important to keep an eye on our credit.

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Your credit scores affect everything from your purchase power to the affordability of your loans. If you have less than stellar credit, you may not qualify for loans for large purchases or, if you do, those loans may come at a high price. For these reasons, you may work hard to keep your credit in good shape. So, it may have shocked you when a most recent credit decision came back negative or, if not negative, with a higher interest rate than what you are used to. What happened?

While several factors can affect your credit score and, therefore, credit decisions, a recent development with one of the three major credit bureaus may be the culprit for many individuals’ adverse credit decisions. That development is the Equifax glitch.

A Recent Credit Score Glitch May Have Caused Individuals’ Scores To Fall by Up to 25 Points

Back in May of 2022, the National Mortgage Professional first reported that Equifax may have experienced a glitch in its system that caused it to report erroneous scores to lenders. Equifax confirmed this mistake, asserting that the error occurred because of a hiccup in the computer coding system. Though the error has since been corrected, it possibly affected hundreds of thousands of Americans over the course of three weeks.

The glitch, which first occurred on March 17, went unnoticed and uncorrected until April 6th. Though during that time, consumers’ true credit scores did not actually change, the bureau reported the erroneous scores every time a lender made an inquiry. These reported false scores could have resulted in adverse credit decisions that either prevented consumers from obtaining loans or increased the rates at which they could borrow money.

Though the bureau estimates that less than 300,000 consumers were affected by this glitch, those who were affected saw a drastic downshift in their scores, with many seeing as much as a 25-point difference. Such a substantial decrease can significantly affect credit outcomes.

The Difference 25 Points Can Make

At face value, this credit score glitch may seem like an innocent mistake that has little backlash for consumers. The truth is, though, that every point in a credit score matters.

Consider, for instance, that the difference between a Bad and Fair credit score, or a Fair and Good credit score, is just a single point. That single point can mean the difference between receiving approval and receiving a denial.

Then there is the fact that lenders use every point to calculate interest rates. For example, say a lender pulled a report for you using the FICO scoring model. Under this model, credit scores range from a low 300 to an impressive 800. A credit score of 675 is considered “good” per this system. With a Good credit score, you would likely get a credit card interest rate of no more than 16.5% and an auto loan interest rate of no more than 4.6% on a new car. Under this same model, however, the Equifax glitch may have brought your score down to 650.

650 is considered a “Fair” score under the FICO model. With a 650 score, your credit card interest rate could be as high as 20.5%. The rate on a new car loan would soar to an average of 11.6%.

The Cost of a 25-Point Difference

Your interest rate goes from 16.5% to 20.5% … So what? Though a four-point difference may not seem like that big of a deal, know that such a point difference can drastically affect how much you end up paying in interest and for how long.

For instance, say you build up $1,000 in credit card debt at a rate of 16.5%. You make more than the minimum monthly payment, at $50 per month. At this rate, you would pay down your debt in 24 months and pay $160 in interest.

Now, say your interest rate is 20.5%. If you continue to pay $50 per month, it would take you 25 months to pay down your debt. At the end of the day, you would end up paying $211 in interest.

If $51 is a small change to you, consider what would happen if you only made the minimum monthly payment, or if your debt were larger. For instance, if you decided to make the minimum monthly payment on a credit card debt of $1,000 per month, and if your interest rate was 16.5%, you would pay $259 in interest. If your interest rate was 20.5%, however, your total interest payment would increase by nearly $100, to $356.

Now, imagine that your balance increased to $5,000. If you paid $100 per month at a rate of 16.5%, it would take you 84 months — and $3,350 in interest — to pay down the debt. If your interest rate was 20.5%, however, your total interest payment would increase to a whopping $5,981 over a period of 110 months.

As you can glean from these calculations, a 25-point difference is a big, and costly, deal. If you believe you are one of the few consumers affected by the glitch, review your credit score and any recent credit decisions you have received. Additionally, reach out to Equifax for verification and possibly reconsideration.

Other Equifax Faux Pas

This is not the first time Equifax has come under fire for the mishandling of data. In 2017, the bureau experienced a breach that exposed the personal information of 147 million consumers, including names, contact information, and Social Security numbers. In 2019 — two years after the fact — the company settled with affected consumers, offering free credit monitoring for up to four years and $125 in compensation.

As more consumers learn about this credit score glitch, there is little doubt that they, too will demand recompense. Industry leaders are suggesting that remuneration will come in the same form as before — free credit reports for the afflicted.

How To Find Errors in Your Credit Report

To date, Equifax is not currently working with consumers to notify them of or sort out the consequences of the glitch. Rather, it is merely working with lenders to determine if it did, in fact, issue false scores. It is up to the lenders to contact consumers and, likewise, up to consumers to reach out to lenders for renegotiations.

As a consumer, you must take steps to protect yourself and your finances. You can do this by searching for errors in your report yourself. Ideally, you will request an official report from the three bureaus or log into your MyFICO account. While you could pull a report from one of the free reporting sites, chances are it will not be accurate. If you pull a report before the end of 2022, you can also request one free report a week from each of the three major credit bureaus thanks to a pandemic-era directive.

Once you receive your report, carefully analyze it for sudden or drastic changes and unusual activity. Also, keep a close eye on your accounts, paying particular attention to changes in your balances, credit limits, or rates. If you believe that any information is erroneous, you have the right to dispute it with the bureau. Credit reporting errors are inconvenient at best and costly at worst. Whether you believe you were affected by the Equifax glitch or you simply want to clean up your credit profile, see how Coast Tradelines can help.