Reader Question: Help! Sallie Mae Destroyed my Credit Score

A reader wrote in earlier this week with this question:

Did you see the news about Sallie Mae's credit reporting error last week?  Basically, former students on graduated payment plans were reported as behind on payment. It impacted about 1 million loan holders. This brings up two questions:

1) How big is the credit score hit? Some people are claiming their scores took a 100-point hit. Is that possible from just one credit report change?

2) One credit bureau, Equifax, has already fixed the mistake. I thought it normally takes 30-45 days for a correction to go through with the bureaus? 

Our credit scoring expert, John Ulzheimer, responded:

1.  Yes, one black mark can damage your score that significantly. In fact, we've seen many scenarios where scores have dropped >200 points because of something derogatory hitting the credit files. Higher scores will be damaged more by new derogatory information. They tend to act like water...they take the path of least resistance.

It appears that the culprit is the narrative code added to the Sallie Mae accounts.  The code, which is translated as "Arrangements made with credit grantor to make partial payments" is considered negative by the FICO scoring system.  This is a good example of how a seemingly innocent change in reporting practices can be disastrous if done without proper research.  One simple phone call to FICO before this change and this disaster would have been avoided.  Who knows how many people were declined credit or approved at disadvantaged rates and have no idea why.

And, if that text was added to multiple accounts (I don't know if SM reports each financial disbursement as a separate loan and therefore a separate account on a credit report, many student loan companies do) then not only were the consumers damaged by the "negative"  incident but were also damaged by the volume of perceived negative incidents.

2.  The credit bureaus can update information in 24 hours when they're motivated to do so.  In fact, they all support services referred to as "rapid rescoring" or "rapid update" for mortgage lenders who have a pending mortgage for a client.  These fee based services turn around credit file changes/corrections  within a day or two.  The 30-45 day update is for the rank in file disputes.

John Ulzheimer – Credit scoring and credit reporting expert, author and President of Credit.com Educational Services. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.

Comments

[Experts on Credit]

I actually need to check my credit because of this mess. Keeping my fingers crossed.