Sallie Mae Wrecks Credit Scores of One Million Loan Holders

A glitch in the way Sallie Mae – one of the nation's largest student loan firms – reported information to the credit bureaus last week caused the credit scores of approximately one million loan holders to plummet – some by as much as 150 points.

According to an article on msbnc.com, the borrowers affected by the glitch were the ones who used graduated payment plans. These plans assume that former students will make more income as they progress in their careers, and thus allow them to pay back less in the early years of their loan, and more in the later years.

FICO, however, interpreted the new reporting as "arrangements made with credit grantor to make partial payments." This made it seem as though the borrower had negotiated for a reduced payment plan after being delinquent – a big black mark on a credit report. And FICO's scoring algorithms penalize those with top credit scores more than those who are consistently delinquent.

According to Sallie Mae, the glitch affected "roughly 10 percent of our 10 million customers," and only impacted Equifax credit reports and scores. (The reporting error was fixed before TransUnion and Experian updated their files.)

For any affected consumers who were in the process of getting a loan, insurance or a job, this would have had a devastating impact on the rate and terms they were able to get. While Sallie Mae says the problem has been corrected and scores returned to what they should have been prior to the glitch, the only way for borrowers to know for sure is to purchase a copy of their credit report.

Given that credit scores control so much of our lives, this situation exemplifies the concern that a simple error can wreak havoc on the financial health of millions… and reinforces why you should always keep an eye on your credit.