Equifax credit score glitch underlines importance of checking your credit score

The Wall Street Journal recently reported that Equifax, one of three major consumer credit reporting bureaus, provided inaccurate credit scores on millions of American consumers seeking loans during a three-week period between March and April of this year. Scores on borrowers applying for mortgages, auto loans, credit cards to big and small non-bank lenders were said to be off by 20 points or more, enough to affect the interest rate they were offered or cause the rejection of their loan application.

Equifax attributes the error to a technology coding issue which has been fixed. This mistake underlines the importance of checking your credit score on a regular basis, said Brett Caviness, president of the Silicon Valley Association of Realtors.

“One of the most important things you can do to strengthen your purchasing power is to have a high credit score. Lenders have become more conservative about loaning money and underwriting standards have become stricter. In the current environment of rising interest rates, your credit score is very important,” said Caviness. “The better your credit score, the more chances you have of receiving a lower interest rate on a mortgage or any other type of loan.”

Credit scores are based on credit reports from Equifax and the two other major consumer credit bureaus - Experian and Transunion. The reports are derived from a consumer’s payment history, length of credit history, new credit and inquiries, revolving debt ratio used from credit card companies, home loans, car loans, and department stores. Information is also obtained from court records, which can include bankruptcy filings, tax liens and judgments. The credit score derived from these reports is a numerical representation of a borrower’s statistical likelihood to repay credit that has been extended to them.

FICO, the most widely used type of credit score, ranges between 300 and 850. Ratings range from Excellent: over 750, Very Good: 720 or more, Acceptable: 660 to 720, Uncertain: 620 to 660, to Risky: less than 620. The lower your score, the less likely you will be approved for a loan, and if approved, you may have to pay a high interest rate.

You can check your credit score for free online. Many banks, credit unions, lenders and credit card issuers offer free credit scores to

current and prospective customers. You may also obtain a free copy of your credit report by contacting one of the three credit reporting companies.

Caviness shares the following tips on how to improve your credit score:

1. Pay your bills on time.

It is very important to keep your score high or to improve your score by making payments on time. Late payments will negatively impact your score.

2. Pay down your debt.

If you have a significant amount of debt, work toward lowering the balance. Maxing out your credit cards or keeping very close to their limits will negatively impact your score.

3. Keep old accounts open.

Length of credit history is an important credit score factor, so keep older accounts in good standing open. Use these accounts sparingly, so they remain active and in good standing.

4. Open new accounts with care.

Opening new accounts could show a pattern of constantly looking for

credit. Do not open credit accounts you do not intend to use.

5. Check your credit report.

It is always good to check and make sure there are no errors in

your credit report. If you find that there are errors, you may revise, delete old information, inform others of a dispute, or trace who pulled or issued a report.

“The Consumer Financial Protection Bureau suggests checking your credit report once a year at a minimum.

You should definitely check your credit before applying for a mortgage or any type of loan,” said Caviness.