Have Federal Student Loans? Better Check Your Credit.

When the coronavirus stimulus package, known as the CARES Act, passed, federal student loan borrowers were relieved to learn they’d get a break on payments for the next six months.

Little did millions of them know their credit scores would take a hit as a result.

Amid the personal and financial turmoil caused by the coronavirus pandemic, people whose student loans are serviced by Great Lakes Educational Loan Services had one more headache to deal with when the company made an error and effectively reported their postponed payments due as unpaid.

While some borrowers only experienced a loss of a few credit score points or none at all, others saw significant drops in their credit scores that, if not fixed, could lead to difficulty securing housing or accessing credit in the future.

If you also have federal student loans, here’s how to check if your credit took a hit and what to do if it did.

Coding Error Leads To Millions Of Inaccurate Credit Reports

Under the CARES Act, federal student loan payments have been automatically paused through Sept. 30, 2020, to provide borrowers with some financial relief during the pandemic. Even so, student loan servicers are required to continue reporting payments as “on time,” essentially pretending that the monthly payment is $0, in order to avoid any negative impact on borrowers’ credit score.

Instead, Great Lakes reported the payments as “deferred,” an indication that suggests borrowers couldn’t meet the terms of their loan agreements. That bad information was reported by all three credit bureaus, and damaged credit scores produced by the firm VantageScore. This affected an estimated 4.8 million borrowers.

Once the mistake was discovered, Great Lakes issued a statement that it was “working with credit reporting agencies ... to ensure the accuracy of the information we reported regarding COVID-19 forbearances, and we do not believe our reporting has impacted actual consumer credit scores provided by those agencies.”

“We provided an updated credit file to the credit reporting agencies on May 15, and all four agencies have processed the file,” a Great Lakes representative told HuffPost.

VantageScore also said in a written statement that 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.”

Though Great Lakes originally stated it did not believe that the reporting error resulted in changes to consumer credit scores, it’s clear that many borrowers experienced immediate negative changes to their credit.

As a result, the Student Borrower Protection Center filed a class-action lawsuit against Great Lakes, national consumer reporting agencies Equifax, Experian and TransUnion, and VantageScore for mishandling this relief under the CARES Act.

This certainly wouldn’t be the first time a student loan servicer came under fire for negligence. In 2017, for example, student loan servicer Navient was the subject of three different lawsuits by government agencies. Last year, the state of New York sued FedLoan for failing miserably at processing student debt forgiveness applications.

“It is not uncommon for student loan servicers to be sued for inaccurate or misleading reporting in general,” said Clark Ovruchesky, an attorney who specializes in consumer law. “Millions of data points are updated every month between student loan servicers and credit bureaus about consumers, so inaccurate reporting is inevitable.”

Ovruchesky said that he’s not aware of any similar cases filed against other servicers, but noted that it’s still early since this issue has just come to light.

How To Check Your Credit Reports

Whether or not you’re a Great Lakes customer, it’s a good idea to check up on your credit if you have federal student loans that were recently paused under the CARES Act.

Everyone is entitled to get a free copy of their credit reports from each of the three major credit bureaus ― Experian, Equifax and TransUnion ― once per year. In light of the coronavirus pandemic, consumers are able to pull their reports weekly for free through April 2021.

There is only one website that’s federally authorized to provide free credit reports. Visit annualcreditreport.com to find yours. Alternatively, you can call (877) 322-8228 and request them.

Once you have your credit reports, examine each one to make sure all the information is correct. Because each credit bureau collects and reports your information independently, it’s possible to have an error on one report but not on another, which is why you should review all three.

Start by double-checking your personal information, such as your name, address and Social Security number. Errors in this information could cause another person’s credit information to be reported as your own. Also review all the tradelines (accounts) listed to make sure they’re accurate, including the date opened and/or closed, the balance, credit limit, payment history and current status.

What To Do If Your Student Loan Servicer Messed Up Your Credit

If you reviewed your credit reports and found a problem, there are a few steps you should take to have it fixed and get your credit back in shape.

Dispute the error with the credit bureaus: “The federal law that protects consumers for patently inaccurate or materially misleading reporting is the Fair Credit Reporting Act,” Ovruchesky said. He explained that under the FCRA, you have the right to dispute inaccurate information with the entities reporting it, and those parties have 30 days to investigate and resolve the dispute. You can dispute credit report errors through each of the credit bureaus’ websites. “If they continue reporting inaccurate information, then the consumer would have a legal claim under the FCRA.”

File a dispute with your creditor: In addition to disputing the error with the credit bureaus, you also have a right to dispute the accuracy of any information on your credit report with the company that reported the information, said Tony Wahl, director of operations at Credit Sesame. He suggested sending a letter disputing the specified information. Whether the creditor is Great Lakes or another organization, it again has 30 days to investigate.

Regularly check your credit reports and scores: Once you’ve filed a dispute, it’s important to follow up and ensure your credit reports have been corrected. Plus, it’s a good idea to continually check up on your credit and make sure there aren’t any other issues. In addition to pulling your detailed reports from annualcreditreport.com, there are also a number of ways to check your FICO and VantageScore credit scores for free.

Consider hiring an attorney: If you’re struggling to resolve a credit report dispute over information you definitely know is wrong, it might be time to hire legal help. The good news about the FCRA, Ovruchesky said, is that it allows for the recovery of attorneys’ fees. That means many consumer law attorneys don’t charge anything out of pocket for pursuing these types of cases because they know the creditors, servicers and/or credit bureaus will be responsible for paying their fees if the lawsuit is successful.

“That’s an important component for these types of cases because most consumers are not in a position to pay hundreds of dollars an hour to hire attorneys on their own to help them resolve inaccurate reporting issues,” he said.

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Also on HuffPost

Myth 1: You should stay away from credit ― period.

<strong>Truth:</strong> Some financial experts, like <a href="https://www.daveramsey.com/blog/the-truth-about-debt">Dave Ramsey</a>, say you should never take on <a href="https://www.huffpost.com/topic/debt">debt</a>. The thought is that too many people struggle with debt and the risk of borrowing money simply isn&rsquo;t worth it. But in today&rsquo;s credit-centric world, avoiding credit cards or other types of debt makes accomplishing other financial goals incredibly difficult.<br /><br />Those who avoid using credit are at risk of never developing a strong credit history, according to Eszylfie Taylor, president of <a href="https://www.taylorinsfin.com/">Taylor Insurance and Financial Services</a> in Pasadena, California. &ldquo;This may present challenges when a consumer looks to make larger purchases like a car or <a href="https://www.huffpost.com/topic/home-buying-and-selling">home</a>, as they have not exhibited the ability to borrow money and repay debts,&rdquo; Taylor said.<br /><br />But even if you don&rsquo;t plan on borrowing money for a major purchase, you can still run into trouble when renting an apartment, opening a new utility account or even getting a job if you don&rsquo;t have an established credit history.<br /><br />You don&rsquo;t have to put yourself in debt to build good credit. But you do need to have some skin in the game.&ldquo;The simple truth is that consumers should look to establish multiple lines of credit and make payments consistently to build up their credit scores,&rdquo; said Taylor.

Myth 2: Closing credit cards will raise your credit score.

<strong>Truth:</strong> If you paid off a credit card and don&rsquo;t plan on using it again, closing the account can feel like the responsible thing to do. Unfortunately, by closing it, you can inadvertently harm your credit score.<br /><br />According to Roslyn Lash, a financial counselor and the author of <i><a href="https://www.amazon.com/Fruits-Budgeting-Effective-Spending-Savings/dp/197918187X/ref=sr_1_1?ie=UTF8&amp;qid=1528151172&amp;sr=8-1&amp;keywords=The+7+Fruits+of+Budgeting&amp;tag=thehuffingtop-20">The 7 Fruits of Budgeting</a></i>, this has to do with your credit utilization ratio. This ratio represents how much of your total available credit you&rsquo;re actually using ― the lower your utilization, the better your score.<br /><br />If you close a credit card, your available credit immediately drops.&ldquo;If you have less credit but the same amount of debt, it could actually hurt your score,&rdquo; Lash explained. In most cases, it&rsquo;s better to cut up the card but keep the account open. Setting up account alerts can help you keep tabs on any activity or fraudulent charges.

Myth 3: Checking your own credit hurts your score.

<strong>Truth:</strong> Certain types of credit checks can have a temporary negative effect on your credit score ― but checking your own credit is not one of them.<br /><br />Checking your own credit results in a &ldquo;soft&rdquo; inquiry, which doesn&rsquo;t affect your score, according to Adrian Nazari, CEO and founder of free credit score site <a href="https://www.creditsesame.com/">Credit Sesame</a>. Other types of soft inquiries include when you&rsquo;re pre-approved for a credit card in the mail or a prospective employer runs a credit check as part of the hiring process.<br /><br />You can check your credit score as often as you want with no consequence. In fact, you should check it regularly; a sudden dip could indicate a problem or possible fraud.<br /><br />Sites such as Credit Sesame and Credit Karma allow you to see your VantageScore 3.0 for free, though you should know this is usually not the score that lenders review. The most widely used score is your <a href="https://www.huffpost.com/topic/fico-scores">FICO score</a>. And though there are services that charge a monthly fee to gain access to your FICO, you can often see it for free if you have a credit card with a major issuer such as Chase.

Myth 4: Making more money will increase your score.

<strong>Truth:</strong> When you apply for a credit card or loan, the lender will often consider your income when deciding whether or not you&rsquo;re approved. But that factor is independent of your credit score, which they&rsquo;ll also consider.<br /><br />It seems to make sense that the more you earn, the easier it should be for you to pay your debts, but &ldquo;your income has nothing to do with your score,&rdquo; Lash said. So feel free to celebrate <a href="https://www.huffpost.com/entry/how-to-ask-for-a-raise-in-2018-according-to-the-professionals_n_5a53b01ee4b0efe47ebb76cc">that next raise</a>, but know that your credit score will remain the same.

Myth 5: Credit reports and scores are the same things.

<strong>Truth:</strong> Though it represents the same types of information, your <a href="https://www.huffpost.com/topic/credit-report">credit report</a> is not the same as your credit score.Think of a credit report as your financial report card and your credit score as the overall grade.<br /><br />&ldquo;Your credit report is a record of your credit accounts &hellip; [including] your identifying information, a list of your credit accounts, any collection accounts you have, public records like bankruptcies and liens and any inquiries that have been made into your credit,&rdquo; said Nazari.<br /><br />On the other hand, your credit score is a three-digit number that represents how likely you are to repay your debts based on the information contained in the report. Your score is &ldquo;based on a complex algorithm that evaluates your relationship with credit over time,&rdquo; explained Nazari. &ldquo;Your credit score is not included on your credit report.&rdquo;

Myth 6: Once delinquent accounts are paid off, your slate is wiped clean.

<strong>Truth:</strong> Paying off past due accounts will get the debt collectors off your back. But when it comes to your credit, the damage can last years after you&rsquo;ve made good.<br /><br />&ldquo;Your credit report shows positive and negative accounts, including collection accounts, discharges, late payments and bankruptcies ― some of which can be on your report for up to 10 years,&rdquo; explained Nazari.&ldquo;That said, some collection agencies openly advertise that they will stop reporting a collection account once it&rsquo;s paid off,&rdquo; he added. <br /><br />If that&rsquo;s the case, keep an eye on your credit reports to make sure the delinquent account is removed. In most cases, however, you&rsquo;ll have to live with the mark until it expires. Fortunately, its impact on your credit score should decrease with time, depending on the type of debt.

Myth 7: You can max out your cards as long as you pay the balance every month.

<strong>Truth:</strong> Paying your bill in full every month is the key to avoiding interest and building a solid payment history. But who knew that racking up a balance midmonth could hurt you?<br /><br />That&rsquo;s because the date that credit card issuers report your balance to the credit bureaus is often not the same date as your payment due date.<br /><br />&ldquo;For a better credit score, keep your balance under 30 percent of your card&rsquo;s total limit,&rdquo; recommended Nazari. So if your card has a limit of $1,000, you should avoid carrying a balance of more than $300 at any time.<br /><br />However, if you want to be able to use more of your available credit, you can pay down your balance before it gets reported to the bureaus. Usually, said Nazari, it&rsquo;s the same as the statement closing date, but you should check with your card issuer to be sure.

Myth 8: You need a credit repair company to fix your bad credit.

<strong>Truth:</strong> Poor credit can feel like an emergency, especially if it&rsquo;s preventing you from borrowing money you need. Credit repair companies bank on that sense of urgency, literally. And though there are a lot of shady credit repair agencies out there, the truth is that even the legitimate ones rarely do anything for you that you can&rsquo;t <a href="https://www.huffpost.com/entry/5-easy-steps-to-repair-your-credit-for-free_n_58de7708e4b0d804fbbb721b">do yourself</a>.<br /><br />&ldquo;The good news is that one&rsquo;s credit is ever changing and can be repaired if there have been some missteps in the past,&rdquo; Taylor said. &ldquo;In time, issues from the past will pass and credit can be restored ... no matter how bad it is today.&rdquo;

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This article originally appeared on HuffPost.