What the Equifax Data Breach Means for You

When it comes to your health, preventative care is instrumental in mitigating risks. Consumer credit health should be handled no differently, and in light of recently disclosed data breaches at Equifax, proactivity is vital even to credit reporting companies themselves.

Equifax discovered on July 29 that hackers compromised information on an estimated 143 million Americans. The credit reporting bureau disclosed this on September 7. Eleven days later, the consumer data giant acknowledged it had also been hacked in March, around the time a software patch was released — one which industry experts say could have prevented the massive historic breach.

Many people may never have heard of Equifax prior to the hacking bombshell. Its purpose, as one of three consumer credit reporting agencies, is to harvest and provide extremely personal consumer data that lenders use in determining your risk as a borrower. This presents in the form of your overall credit score, a financial health rating that allows lenders a general idea of a person’s ability to handle the obligations that come with being approved for a loan. Credit scores include a lifetime of factors like your rental history, credit card payments, student and car loans, and mortgages, and serves as a measure of your ability to satisfy concurrent financial obligations.

Responsible habits right out the of gate are the fastest way to build a good credit score. Vigilance, a lesson that came at a steep price to the credit bureau itself, is also key to safeguarding your credit health — and it’s never too late to adopt the following practices to get on the right track.

Make payments on time.

Making your payments on time is the first step in preventative credit repair — this one factor alone weighs about 35 percent of your entire credit score. From your credit card payments all the way down to your monthly utility bill, every payment that is late or missed can affect your score significantly.

Take what happened to Vicki Stovall, of Oklahoma, for example. Her husband’s severe illness, which rendered him unable to work and provide for the family, also led to mounting medical bills that spelled financial ruin. Vicki relied on credit to augment her insufficient salary, and late fees, missed payments, and mounting interest on minimum payments snowballed. She eventually found herself unable to afford or secure credit for a minor repair on the family’s car. Do yourself a favor and set up payment reminders and take advantage of automatic payments to avoid issues.

Only apply for what you need.

Just because you’re approved for a credit card doesn’t mean you should sign up. You should be sparing with how often you apply for credit — weigh your credit limits against how much you earn and make sure you don’t accept anything you aren’t sure you could pay. Applying for credit too frequently can spell trouble for your credit score in the long run. Be sure to look into the fees and interest rates. Some cards, especially those with airfare perks, come with an annual fee just to be a cardholder.

Practice responsible spending — use credit as you would a debit card.

Getting approved for a credit card can be both a blessing and a curse. For one, it can be a monetary lifeline if you find yourself in a pinch, but it can also spark a false sense of financial security, allowing those with poor spending habits to go on a spree of frivolous purchases. It’s important to know that a credit card isn’t just free money and that you will at some point have to pay it back.

Make a point to save those credit card expenditures for only things that are necessary, and aim to keep your credit card utilization below 10 percent. Every time you go to make a purchase, think about what you have in the bank. Remember, too, that checking and savings accounts have fees as well, the most common of which is the overdraft fee. The last thing you need is to owe both your bank and creditors.

Diversify your accounts.

Even if you are making payments on time and stay well within your credit limits, lenders want to see that you can balance multiple accounts every month. By gradually adding various types of accounts — credit cards, auto loans, student loans, or a mortgage — you’ll be well on your way to reaching your goal.

Work on reducing your debt.

While striving to reduce your overall debt won’t necessarily directly affect your credit score, eliminating hefty debts from your monthly payments is highly satisfying and can take a huge weight off of your shoulders. Make a point to round up all accounts on which you’re owing and set up a payment plan to knock out excessive balances. This will take a bit of discipline for a while, but it will make managing your accounts in the future much easier.

Check your credit score frequently.

The only way to know for certain how well your credit repair efforts are going is to check your credit score on a regular basis. The Fair Credit Reporting Act allows you a free copy of your credit report once each year. This is vital to establishing and maintaining a good credit line. Errors in credit reports are fairly common — it’s up to you to identify and dispute any errors you find, especially after the massive Equifax breach.

Establishing good habits in building your credit is the quickest and easiest way to ensure that you achieve and maintain a desirable credit score. Your credit score is your bridge to future financial security; be proactive in your credit repair efforts and you’ll crush problems before they crop up.

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