Equifax is a credit reporting agency that collects and stores your financial history. Your data is then compiled into what is referred to as a credit report. Lenders and other financial institutions will then refer to your most recent credit report to judge your creditworthiness for loans, lines of credit, and other financial products.
Equifax is one of the three national credit bureaus. The other two major credit bureaus are TransUnion and Experian. Out of these credit reporting agencies, Experian is the largest and usually the most commonly used. However, that doesn’t mean Experian is a better or more accurate credit reporting agency.
Equifax and its practices must adhere to the rules and regulations established by the Fair Credit Reporting Act. The Fair Credit Reporting Act (also called FCRA) was passed in 1970 with the purpose of protecting consumers from unfair credit reporting practices. Under this legislation, consumer information is protected, provisions must be taken to protect consumers from inaccurate credit scores and identity theft, and credit bureaus may only distribute credit reports for specific reasons.
It’s important to keep in mind that Equifax credit scores and your FICO score are not the same things. FICO scores were developed by the Fair Isaac Corporation and are the scores most lenders, creditors, and other financial institutions use to determine a potential borrower’s creditworthiness. Furthermore, your FICO score is generated using financial information from all three credit bureaus. So, since your financial data may differ with each credit bureau, your FICO score and Equifax credit score may also vary.
Equifax’s credit scores typically range from a starting score of 300 to a perfect score of 850. Below is a general breakdown of credit score ranges.
Consumers with a credit score between 800 and 850 have excellent credit. These consumers will have access to just about any financial product or loan of their choice.
Consumers who have a score in the range of 740 and 799 are said to have very good credit. Consumers with very good credit usually also have an easy time finding approval for loans, credit cards, and other financial products.
Consumers with good credit will have a score between 670 and 739. While this credit range isn’t considered bad, borrowers may need a cosigner if they are looking for approval on more traditional types of loans like a bank loan.
Consumers with credit scores between 580 and 669 are considered to have fair credit. Consumers with these types of credit scores are often referred to as subprime borrowers.
The lowest tier of credit scores is usually between the ranges of 300 and 579. Consumers with scores within this range are said to have poor credit. These consumers are usually considered a high lending risk and may have difficulty finding approval for many loan types. Consumers with credit scores within this range should consider the following tips to try and raise their scores:
Make on-time payments on due bills and expenses.
Avoid applying for new lines of credit.
Focus on paying off existing debts.
Your Equifax credit file is compiled from data belonging to five different financial categories. Those categories are:
History of payments.
Credit history length.
Hard credit checks.
Mix of credit.
The most impactful factor that contributes to your credit score is your payment history. Credit bureaus view consumers who make their due payments consistently and on time as financially responsible borrowers, which is why payment history has such a large impact on your overall score. There are also harsh penalties for borrowers who fail to maintain their payment history. For example, just one missed payment has the ability to negatively impact your credit score for up to seven years!
Credit bureaus also take into account how long you have had financial accounts active and open when determining your credit score. The longer you have had open financial accounts, the more experienced you are in the eyes of most credit bureaus. This is why you don’t want to cancel a credit card account unless absolutely necessary if it is your oldest financial account on file.
The amount of debt you currently have will also affect your credit scores. Credit bureaus calculate your total amount of debt with your general income to determine your debt-to-income ratio. Bureaus can also use your credit card information to calculate your credit utilization ratio. Your credit utilization refers to how much credit you currently have available to you compared to how much you are currently using. For the benefit of your credit score, bureaus suggest that consumers try to keep their debt-to-income ratio no more than 40% and their credit utilization no higher than 30%.
Credit bureaus track how often consumers apply for loans or lines of credit by keeping a record of hard credit inquiries. Oftentimes, when you apply for a financial product, your lender or creditor will request an official copy of your credit report from one of the three credit bureaus. If a credit bureau sees that you have applied for many loans within a short period of time, they may penalize your credit score. Then, when lenders see your declining credit, they may take it as a red flag that you are a financially irresponsible borrower. This is why you want to limit your credit applications to just one or so every few months, if necessary.
The different types of financial accounts you have will also contribute to your credit score. Financial accounts that may appear in your credit mix are:
Existing loans like personal loans, payday loans, auto loans, or student loans.
Bank, checking, and savings accounts.
Past due bills or accumulated debt.
Some types of credit accounts are considered “good debts,” like mortgages, auto loans, or student loans. This is because these forms of debt offer the borrower something other than money. Mortgages result in the borrower owning a home. Student loans result in the borrower gaining an education. An auto loan results in the borrower gaining ownership over a vehicle. Other types of loans that do not give the borrower anything other than funding are referred to as “bad debts.” Payday loans, car title loans, and auto title pawns are common examples of “bad debt.”
Thanks to the Fair Credit Reporting Act, consumers have the right to access a copy of their official credit report from each of the major credit bureaus at least once a year. However, consumers can also perform what is called a soft credit pull any time they like, with no penalty to their credit score. Soft credit pulls, also called soft credit checks, are unofficial copies of the financial data that makes up your credit score. Many banks, credit card companies, and other financial institutions offer soft credit pulls for their customers.
Equifax announced in September of 2017 that they had suffered a data breach that potentially exposed the personal information of over 147 million people. In an attempt to assist affected consumers, Equifax agreed to a global settlement of approximately $425 million with the Federal Trade Commission (FTC), the Consumer Financial Protection Bureau (CFPB), and all 50 states and territories in the United States.
Consumers who filed a claim in the Equifax settlement received free credit monitoring services as well as compensation for the following:
Losses from unauthorized purchases or charges to any of your financial accounts.
Fees paid to professionals who helped in the identity recovery process.
Other expenses or losses incurred from identity theft or fraud from the data breach.
Affected consumers can also file a claim for the time spent recovering from identity theft or fraud as a result of the Equifax data breach between the dates of January 23, 2020, and January 22, 2024. However, there are limited funds available, so the sooner you file your claim, the better. Even then, there is a chance your claim may be reduced.
‘Buy Now, Pay Later’ Credit Reporting | Equifax Newsroom
Equifax Data Breach Settlement | Federal Trade Commission
What is a Credit Score – Credit Score Range | Equifax
What Affects Your Credit Scores? | Experian
Fair Credit Reporting Act | Federal Trade Commission
Fair Credit Reporting Act
What is the Difference Between Credit Scores from Equifax and Credit Scores from FICO?
What are the Different Ranges of Credit Scores? | Equifax
The cash you need at ninja speed.