The Equifax Real Danger

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By now, the news of Equifax’s security breach, resulting in the personal data of millions of people being exposed to criminal hackers, has been widely reported.  To recap, hackers were able to exploit a software vulnerability in Equifax’s computer systems.  There was an easy repair available for this vulnerability in March 2017, but because of Equifax’s gross negligence, nobody in their information-technology department could be bothered to make the fix.  By all appearances, Equifax was not particularly serious about computer security.

But since the damage is done, the real focus for individuals should be about protecting themselves in the future.

What is Equifax?

Lending and borrowing money has formed the backbone of our economy for centuries.  Whenever someone lends money to another person, the lender is taking a risk that they will not be paid back.  With this risk, it is in the lender’s best interest to have as much information as possible about the borrower.  This is where Equifax and other agencies such as Experian and TransUnion come into play.

Equifax collects information about borrowers from various sources and stores that information for future use by lenders.  Over time, as a borrower develops a track record for paying or not paying their bills, a profile develops whether this particular individual is worth the risk of lending future dollars.  This is very valuable knowledge, as it helps lenders figure out who should be trusted to borrow money and who should be avoided at all costs.  Since its founding in 1899, Equifax has figured out how to make money by trading this personalized information.

Who Is At Risk?

Much of the attention on the Equifax breach has been focused on the risk that individual consumers will experience now that their personal information is in the hands of criminals.  The risk is real, particularly if those criminals can gain access to people’s bank accounts and drain all the money.  Identity thieves can also attempt to borrow money under another person’s name, ruining their credit rating.

But an even bigger risk belongs to the lenders now.  In the past, lenders could adequately identify a borrower through a combination of Equifax data and the assurance that certain information, such as a social security number, was only known by the particular borrower.  Equifax’s gross negligence has completely upended that trust. Now lenders have less certainty that the person who is trying to borrow money is actually the real person.  And that places the lender at financial risk.  When a thief opens up a credit card using stolen identity information, the credit card company is left holding the bag for the charges racked up.

So while it is very important for individuals to take steps to protect themselves, it should be remembered that lenders are the ones with the biggest financial exposure in the Equifax debacle.  The real danger of the Equifax breach is the liability that lenders will experience.

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Protect Yourself

With all that personal information now in the possession of criminals, individual members of the public should take protective measures.  Periodic, regular inspection of all assets, including bank accounts, property deeds, and car titles is necessary to ensure that nobody is attempting to transfer cash or assets out of your name.  Obtaining a copy of your credit report every year from all three agencies (Equifax, Experian, and TransUnion) is imperative to ensure that nobody is attempting to open debt instruments (such as credit cards) in your name.  Getting a permanent credit freeze, while cumbersome and time consuming, should be considered and implemented.

But there is one more way to protect yourself that has been rarely discussed.  Live a life not needing to borrow money.

If you never have to borrow money, the importance of your credit rating diminishes significantly.  The reason most individuals are so worried about the Equifax breach is because of the risk that thieves will destroy their credit rating.  Lenders not being able to access a credit rating is also the reason why so many individuals are refusing to permanently freeze their credit files (a frozen credit file completely locks out access by lenders).  But one group of individuals have none of these worries.  People who live within their means, save up a large reserve fund, and live a lifestyle that requires no mortgage, no car loans, no student loans, no store cards, no new credit cards, and no other form of debt have little reason to worry about their credit score.  They can freeze their credit file and be done with the money lenders for good.  These are the people who achieve happiness by avoiding the debt trap.  That is the ultimate freedom from all this stress, regardless of Equifax’s gross negligence.

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