When you cry “Fire”, you expect there is a fire. When you cry “Wolf”, you expect a predator is coming. Many consumers are crying “Fire” or “wolf” when they have followed their Vantage® Score. The reason? The Vantage Score created a major crisis this week that reached all the way to the White House. Unfortunate, there was no crisis, no fire, no wolf. It was all about nothing.
This is a big one. Congratulations Vantage Score, you got millions of consumers excited and upset — all about nothing. Nothing! Now a class action suit has been filed against Great Lakes, a student loan servicing company. Great Lakes did exactly what they were supposed to do according to the Fair Credit Reporting Act, it was the Vantage Score that really messed this up.
What Happened?
From this Covid-19 pandemic, the U.S. government has approved extended deferments for student loans for as long as up to a year. As a result of this decision, many former students have requested student loan deferments. Loan servicing companies have updated their systems to reflect that such loans are in deferment and are no longer being paid. Pretty simple.
Great Lakes is one of the nation’s largest student loan servicing companies. They changed the status of these loans to “deferred” from an ongoing paying account. This change does not reflect poorly on anyone’s credit. The lender reports the loan in deferment to the credit bureaus.
Vantage Score Creates Troubles
When a lender grants a borrower’s request for a deferment, the consumer’s Vantage Score will because it is distinctly part of their scoring program. Since many borrowers follow a Vantage Score, they have seen these scores and now, Twitter has gone crazy! A class action lawsuit has even been filed. You sense the frustration by many from the following articles.
https://www.marketwatch.com/story/up-to-5-million-student-loan-borrowers-may-have-had-their-credit-scores-drop-after-the-cares-act-paused-student-loan-payments-its-another-battle-to-have-to-fight-2020-05-22
https://www.cnbc.com/2020/05/21/your-student-loans-are-on-pause-but-check-your-credit-score.html
https://www.politico.com/news/2020/05/20/emergency-releif-student-loan-272334
“VantageScore, one of the major companies that provides credit scores, said it was making changes to its algorithm “to minimize the potential of any negative impact associated uniquely with the usage of forbearance and deferment codes.”
If someone has a Great Lakes student loan with a 700 Vantage Score for example, when Great Lakes changed that student loan to “Deferred” and reported it to the three major credit bureaus, that change by itself lowered the Vantage Score to say 670. For FICO, a 700 FICO for a consumer would stay a 700 FICO score after a student loan is changed to “Deferred”.