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 VantageScore®. 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 VantageScore, 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.
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 brueaus.
Vantage Score Creates Troubles
When a lender grants a borrower’s request for a deferment, the consumer’s Vantage Score will drop because it is distinctly part of their scoring program. Since many borrowers follow a Vantage Score, they have seen these scores drop and now, Twitter has gone crazy! A class action lawsuit has even been filed. You sense the frustration by many from the following articles.
"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 VantageScore 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”.
Welcome to the one of the many differences between the unreliable consumer credit score called VantageScore, and the FICO scores that lenders use for loan approval.
Now we are changing the scoring program to accommodate borrowers to make them feel better? Really?
This is All for Nothing
Unfortunately, this is all for not. They are all wrong. There is one big problem here. VantageScore is not used by any lender or other financial services company for any loan approval. Lenders use FICO® Scores. FICO has stated:
"FICO does not take deferments into account in its algorithm, so Great Lakes’ deferment coding didn’t affect borrowers’ FICO scores."
If a deferment status didn’t impact the FICO scores of any borrower, and all lenders use FICO scores, there is no damage to a consumer’s credit standing as seen by lenders. Vantage needs to step up and tell consumers that their scores are not used by lenders for their loan approvals. But they won’t. They don’t want you to know that because that would make the Vantage Score as a less valuable score model. If no lender uses the Vantage Score for loan approval, what’s the purpose of this so-called crisis?
To the millions of consumers, this issue with Great Lakes is all about nothing.