An error from Equifax resulted in erroneous credit scores being sent to a variety of lenders, potentially affecting the interest rates of borrowers or even resulting in their applications being denied.
Equifax provided wrong scores for millions of consumers for three weeks from mid-March to early April, the Wall Street Journal reported. The incorrect scores — sometimes off by 20 points or more — went to JPMorgan Chase, Wells Fargo and others.
At one bank, an estimated 18 percent of applicants during the period had incorrect scores sent for them, reportedly swinging scores by an average of 8 points.
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Equifax began disclosing the errors to lenders in May. The company blamed the glitch on a “technology coding issue” and said it’s since been fixed, the Journal reported.
Credit scores play a significant role in the pricing and approval of loans for mortgages, auto loans and credit cards. An incorrect score could be the difference between an affordable and unaffordable mortgage for prospective homeowners.
An estimated 2.5 million credit scores were sought by mortgage lenders during the three-week period. It’s not clear how many people were materially affected by the botched scores.
Protocol for mortgage lenders, however, is to look at credit scores from all three major credit-reporting companies, which would mute the impact of bad numbers from one of them.
Fannie Mae and Freddie Mac likely only purchased a small number of loans at prices that were affected by the mistake. If borrowers’ loans are deemed riskier than initially thought, the mortgage lenders might owe Fannie and Freddie some money. The government-sponsored entities, conversely, could have to send lenders some cash back if scores were supposed to be higher.
Lenders are reportedly considering repricing loans and giving rejected applicants the chance to reapply. The problem for borrowers, however, is that interest rates are significantly higher now than they were in the early spring, when the error unfolded.
Equifax is the same company that was hacked in 2017, resulting in the sensitive personal information of nearly 150 million Americans being exposed on the dark web.
— Holden Walter-Warner