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Identity theft harms credit score

by Mikael published on October 18, 2017

Identity theft can harm your ability to get credit and loans – on top of other issues. The actions of fraudsters can affect your credit score in many ways. The damage can be terrible. Yet, you can avoid impact by contacting your card issuers and filing a dispute with them. Four years ago, John Snow credit score fall from 780 to below 700 after someone had stolen his identity.

 

“I spent hours online filing complaints with all major credit reporting companies,” Snow said. In total more than 50 hours over the period of six months in the hope of repairing the damage.”


Snow was lucky to have a impeccable credit score before the theft. For other customers, losing more than 80 points could prevent them from getting credit cards and loans with good terms, if any credit at all. Here’s how identity theft can affect your credit score, based on some of FICO’s key scoring components. Payment history: The thief isn’t ‘good for it’ If a thief opens a credit card or takes out a loan using your personal information, chances are he’s never going to pay the balance. Credit card issuers typically report late payments to credit bureaus once they’re 60 days past due. Payment history accounts for 35 percent of your credit score, and a single missed payment can cause it to drop by as many as 110 points. It takes time to repair credit score damage from fraud, even after you’ve reported it to the card issuers and closed the cards.

 

“Building credit takes time, but the amount of time it takes to do so varies,” said Heather Battison, vice president of TransUnion. “That’s also true for repairing credit after identity theft. Each situation is different. It's always important to respond if you believe your identity has been stolen.” Battison said TransUnion typically resolves disputes within 45 days, if the consumer files the proper documentation. That can include a police report and a letter from the creditor stating how the account is corrected, among other documents.

 

Failure to act will worsen the damage. If a thief rings up a high balance in your name and doesn’t pay, the unpaid debt will eventually be turned over to a collection agency. That’s another derogatory credit report item that can cost your credit score over 100 points. If that’s not enough, lenders can also pursue legal action against you for unpaid debts.

 

“If someone is unaware of this activity and these debts go unpaid – which they invariably do – the lender might sue the person for the balance they ‘owe,’” Battison said. “People can fight these types of lawsuits and they may win if they can establish that they’re a victim of identity theft, but the battle will run up legal costs, not to mention the time it takes to tend to the matter.” Battison also noted that a thief can use your personal information to drain your checking account, which can then result in missed payments on your legitimate credit accounts.


Credit utilization: Take it to the limit If a thief applies for a credit card in your name and gets it, the odds of the card then being maxed out are high. FICO estimates that charging up to your card’s limit can lower your score by as many as 45 points. Identity theft expert Rob Douglas said thieves tend to ring up high balances on fraudulent credit cards right away because they know the fraud will eventually be detected.

 

“The odds are that the card’s going to get closed down before they’ve done much, so they want to maximize it as quickly as possible,” Douglas said.


Length of credit history: Card binge shortens your ‘life span’ Let’s say a thief obtains your personal information and applies for five different credit cards in a span of a few weeks or months. If all those applications are approved, it significantly decreases the length of your credit history, which accounts for 15 percent of your credit score.


It may not be such a problem if you have several card or loan accounts that are 8 to 10 years old on average. But suppose your credit history consists of one card that’s 5 years old and another that’s 2 years old. If five new cards are added to your account at once, your average age of all accounts drops from 3.5 years to 1 year.


Your score should return to normal in a short amount of time if you report the cards as fraudulent and file disputes with credit bureaus right away.


Douglas said sophisticated credit card fraud rings usually don’t open multiple credit lines in one victim’s name because it can arouse suspicion. But there are exceptions. In June 2017, a Washington woman was arrested for an identity theft spree that spanned two counties. One of the woman’s victims said in court that nine credit cards had been opened in his name and that his “perfect” credit score was ruined.


New credit: Multiple inquiries add up A thief can only obtain so many credit accounts in your name – eventually, issuers may balk at the sight of so many new accounts and start denying further applications. But that may not stop the thief from trying, and every credit application generates a hard inquiry on your credit report.


Hard inquiries typically ding your credit score by about five points, but an avalanche of applications can send your score into a freefall. Hard inquiries not related to fraud typically stay on your credit report for two years, but fraudulent ones can be removed sooner by filing disputes with the credit bureaus, Battison said.

 

It’s not the worst thing that can happen, but … Credit score damage isn’t the worst possible outcome of identity theft. As noted by the Federal Trade Commission, a thief can file a tax return in your name and take your refund or even give your name to the police while being arrested. But a credit score collapse – whatever the cause – can hurt your ability to borrow in the short term. And it takes time and effort to reverse the impact of identity theft.


“Identity theft can have a lasting effect if it’s not addressed quickly and properly,” Battison said. “That’s why we always recommend customers take preventive measures to protect their credit.”

 

By taking the right steps to protect yourself – by checking your credit report regularly at CreditCards.com and securing your personal information, among others – you can focus on maintaining and building excellent credit without fear of sabotage.

WHAT TO DO WHEN YOUR IDENTITY HAS BEEN STOLEN

If you’ve been targeted by an identity thief, it’s critical to take the following steps as quickly as possible to mitigate the damage.

  1.         Contact the card issuer. If you spot a credit card account in your name on your credit report that you didn’t apply for, call the bank or issuer’s fraud department and send an additional notification in writing.
  2.         Place a fraud alert on your account. Contact Equifax, Experian or TransUnion and place a fraud alert on your report. You only have to contact one of them – the bureau you call is required to notify the others, and they will all be alerted within 24 hours.
  3.         File a dispute with a credit bureau. Notify one of the credit reporting agencies in writing of inaccurate information that appears on your credit report. Explain why it’s inaccurate and request that it be removed. If the information is proved to be inaccurate, all three credit bureaus must correct it in your file.
  4.         Call the police. Contact your local authorities and obtain a copy of the police report. The police report allows you to prove a crime has been committed when you’re dealing with creditors and filing identity theft reports.
  5.         Change your passwords. Create new passwords for every online account that contains your personal information. Start with your bank and credit card accounts and then change passwords for other accounts that involve money transactions (i.e., utility providers, Netflix, PayPal).
 

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