Credit Score Mistakes Hurt Consumers Where They Hurt
Americans seem to have a love-hate relationship with their credit score. They love it when the system rings all the cylinders and hate it when the credit scoring forms unfairly knock them over.
why? Because a lower credit score leads to higher interest rates on approved credit and outright rejection by creditors of major home financial initiatives such as mortgages, auto loans, and credit cards.
Equifax, (EFX) One of the three major credit scoring agencies (besides Experian (EXPGY) and Transunion (TRUE) ), said it misreported consumer credit scores between March 17 and April 6, 2022.
This gentleman has damaged the credit scores of millions of Americans, resulting in negative reactions to mortgages, auto loans, credit cards, and other credit applications.
More than 300,000 Equifax accounts have been affected by credit reporting errors, with some credit scores dropping by 25 points or more.
“In April, we identified an issue within a legacy US on-premises server environment that was scheduled to migrate to the new Equifax cloud infrastructure,” said Mark W. Bigor, Atlanta CEO. “This problem, which has been around for a few weeks, has affected how some credit scores are calculated.”
The registry issue was fixed in April, and Begur said that Equifax has spent the past three months working with its customers to determine how the issue affects consumers. “We will also engage a third party to conduct an independent review,” Begur said.
Mistakes that harm consumers
The damage caused by faulty credit score models may be worse than credit consumers think.
A recent report from LendingTree found that 42% of Americans were denied a credit product because of their credit score in the past year, with credit scoring errors such as the Equifax flub playing an “influencing” role.
These data are taken from the study:
· 42% of Americans say their credit score has prevented them from obtaining a financial product in the past year. This number rises to 74% among those with poor credit. Credit cards (25%) and personal loans (12%) are the top products consumers say they’ve turned down because of their credit.
· 40% of Americans do not believe that their credit score accurately reflects their financial responsibility. This is especially true for those with poor credit (60%), millennials (47%), and women (44%).
· Payment history is the single most important factor in calculating a credit score, but 50% of Americans don’t know it. GenZers (61%) and Millennials (60%) are more likely to answer this question incorrectly. But only 39% of General Zers say the date of payment should Be the most important and least factor between generations.
· 44% of Gen Zers don’t know their credit score, while 25% say they don’t know how to find out. Overall, 19% of Americans said they don’t know their credit score — and 12% don’t know how to check their credit score.
Why credit scores are so messy
The main and most obvious reason credit scores – and credit score – are out of balance is the onset of COVID-19.
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“Many people have lost their jobs, had their wages cut, or become unemployed out of desperation from looking for work,” said Brian Greenberg, CEO of Insurist, in Scottsdale, Arizona. Because their income was negatively affected, many families were unable to make timely payments for outstanding debts or pay new medical bills, which negatively affected their credit.”
Inflation has also lowered America’s credit scores.
“With a greater proportion of their monthly budget being devoted to food and fuel, people have found it increasingly difficult to keep up with their personal and student loan payments, at the expense of their credit,” Greenberg told TheStreet.com.
Additionally, while many individuals’ credit scores have legitimately declined, there is a problem with accuracy.
“According to an investigation from Consumer Reports, 34% of consumers found an error in their credit report in 2021,” Greenberg noted. “This negatively impacts these people’s ability to obtain credit cards, approve personal loans, and can negatively impact their employment prospects.”
Many lenders also stressed lending in early 2020, but began offering more credit through late 2020 and into most of 2021.
Chad Prachad, president and CEO of World Acceptance Corp. , in Greer, SC “The additional credit was offered during a period in which record average credit scores were high and unemployment declined.” However, inflation has affected daily spending and there is a growing concern that when there are few bills left at the end of the month to pay the bills, consumers may miss payments.”
Today’s lenders are also rejecting applicants they would have approved last year.
“This is especially true for those with less than perfect credit,” Prashad told TheStreet. Forty-five million Americans have high-risk credit scores (scores less than 620). Because of the increased risk of default when lending to consumers with weak or new credit, conventional banks and lending institutions will not offer them loans.”
Action steps to repair and improve credit
What steps can people take to improve their credit score and boost their chances of getting a good loan or credit card?
If you suspect there is a problem, or you’re just excited to build a more robust credit score, try these tips.
Watch your credit score like a hawk. With Equifax’s failure in mind, the best way to fix any errors on your credit report is to keep a close eye on your credit report.
“Regular checking your credit score helps identify errors that can lower your credit score,” said Bill Rizzi, a certified financial advisor at Fiona, a financial services platform. “So, occasionally ask for your credit report, and check for errors. If there are any, contact the listed bureau or credit company for corrections.”
Build your balance. People who have no or poor credit need to build a track record as a safe credit risk. “They can do it with credit building loans or secured credit cards,” Greenberg said. They can also be added as an authorized user on someone else’s credit card.
Don’t miss out on payments. Missing payments hurt your credit score, while having a history of making payments on time can help you achieve a stellar score. “Payments that are 30 days late can be reported to credit bureaus and hurt your credit scores,” Greenberg noted.
To prevent missed payments, set up automatic payments for minimum amounts due (you can always pay more) and contact your credit issuers if you’re having trouble making payments due to financial hardship.
Decide how often to apply for credit. Every credit request you submit can lead to a difficult inquiry, which can hurt your credit score. “Opening new accounts also reduces the average lifespan of your account, which negatively affects your score,” Greenberg added.