These Credit Repair Steps Can Help After ID Theft
Identity theft can significantly affect your credit history, as these types of scammers can apply for credit accounts and accumulate large amounts of debt in your name. This can damage your credit score, leading to higher interest rates and making it harder to get approved for new credit lines.
Luckily, there are steps you can take to stop identity thieves and get your credit history back in shape.
Impact of identity theft on your credit
When identity thieves steal your personal information, they typically use it to open credit cards, take out loans or apply for utility services (like water, gas or internet) in your name. They can then leave these accounts unpaid for months, leading to late payments and significant amounts of debt being reported on your credit report.
The two most important factors influencing your credit score are your payment history and the amount of debt you owe. As missed payments and high outstanding balances from fraudulent accounts start to show up on your credit history, your score might drop around 100 points or more.
You’ll then have a hard time qualifying for credit cards, personal loans, mortgages and other financial products. You'll also pay higher interest rates and have lower credit limits when you do get approved.
How to repair your credit after identity theft
Repairing your credit after identity theft typically involves disputing incorrect information with credit bureaus and working with creditors to close any fraudulent accounts. But there are additional steps you should take to safeguard your creditworthiness.
Here's what you should do:
1. File a report with the FTC and local police
Start by reporting the fraud to the Federal Trade Commission (FTC) through IdentityTheft.gov. This will generate an official report you can use to notify your creditors and ask them to close fraudulent accounts or refund unauthorized transactions.
Based on the information you provide, the FTC will also create a personalized identity recovery plan with steps you should take to stop fraudsters in their tracks and fix your credit. You can either print your plan or set up an account on the FTC's website where you can track your progress. You’ll also get access to pre-filled letters and forms you can send to credit bureaus, creditors and debt collectors.
2. Check your credit report for fraudulent accounts
If someone has used your information to take out credit cards or loans, these fraudulent accounts will show up on your credit reports. These accounts will damage your credit score as the fraudster racks up debt and doesn't pay it.
To avoid this, check your credit reports from the three major credit bureaus (Equifax, Experian and TransUnion) for accounts you don't recognize. You can get free copies of your reports through AnnualCreditReport.com.
If you find any fraudulent accounts on your reports, contact the bureau that is reporting the account and ask them to remove it. You can file a dispute online, by phone or by mail.
3. Contact your creditors to report suspicious accounts
Besides filing a dispute with the credit reporting agencies, you should also report the account to the creditor who opened the fraudulent account.
You can find the creditor's name in your credit report, along with the date the account was opened, type of account and other information you can mention when reporting the account. Note that the creditor might ask for a copy of your FTC identity theft report and a police report to confirm you're a victim of identity theft.
4. Place a fraud alert on your credit reports
Fraud alerts let creditors know your personal information has been exposed to a fraudster, so they should take extra steps to verify your identity before opening any new accounts in your name.
There are two types of fraud alerts: initial and extended. Initial fraud alerts are available to anyone and last one year. However, if your identity has been stolen and you filed a report with the FTC, you can opt for an extended fraud alert. These last seven years, and they also stop companies from sending you pre-screened credit card and insurance offers for five years.
You can place a fraud alert by calling the credit bureaus or through their website. You don’t need to notify all three bureaus — the first one you contact will inform the other two.
5. Freeze your credit reports
A credit freeze goes a step farther than fraud alerts and blocks access to your credit report.
When you freeze your report, lenders can't see your credit history, so they won't open new accounts in your name. This effectively stops fraudsters from applying for credit using your personal information.
To freeze all three of your credit reports, you'll have to call each bureau separately. You can also place a credit freeze online if you create an account with the bureaus. The freeze will stay in place until you lift (or thaw) it.
Should I hire a credit repair company?
Credit repair companies help individuals improve their credit scores by reviewing their credit reports for inaccuracies or outdated information that is impacting their creditworthiness. They then work on your behalf to dispute these errors with the credit bureaus and creditors.
Hiring a credit repair company can be helpful if your credit report has multiple fraudulent accounts and you're unsure how to dispute them yourself — or have little time to.
Still, keep in mind that many credit repair companies charge significant setup and monthly fees, sometimes exceeding $100. This can be a steep price to pay, especially since you can repair your credit yourself for free. Also, watch out for credit repair scams; avoid companies that promise to delete all negative items from your credit report, even those that are correct.