How Identity Theft Can Hurt Your Credit Score — And What You Can Do About It
Identity theft can impact your credit and finances in significant ways — some of which are hard to recover from. This makes it especially important to catch any signals of identity theft early, before they can wreak havoc on your personal finances.
Read on to see how identity theft can impact your credit and how to best protect yourself and your wallet.
How does identity theft impact your credit score?
While there are different types of identity theft — some of which involve the stealing of medical information or even house titles — most practices involve gaining access to your Social Security number and other personal information that might allow identity thieves to open new accounts under your name.
A scammer with your SSN and other personally identifiable information (PII) can use these to apply for credit card accounts or loans without your knowledge. If they’re approved, they’ll typically rack up credit card debt or use up the loan funds without paying them back, leaving you with a credit report riddled with defaults and late or missed payments.
Because payment history and the amount of debt owed account for more than half of your credit score, multiple late payments, defaults and/or maxed out credit cards would bring even an exceptional score into the “poor credit” classification.
How to protect your credit from the effects of identity theft
The threat of identity theft cannot be overstated; but there are things you can do to mitigate its damage.
Monitor your credit report
Unfortunately, most victims of identity theft only find out about the fraudulent activity once they’re denied a loan or a credit card due to poor credit. This is why it’s so important to monitor your credit report, monthly if possible.
There are several ways you can do so.
You can request weekly credit reports from all three major credit bureaus (Experian, Equifax and Transunion) for free from AnnualCreditReport.com. While these won’t contain your score, you’ll be able to check the credit accounts and credit inquiries reported under your name.
And, if you see any you don’t recognize, you should dispute the suspicious activity with the credit reporting agencies immediately. While mistakes do happen and accounts for similar names could be reported in the wrong credit report, multiple new credit accounts that you did not open could be a sign of identity theft. Either way, it’s important you contact the credit bureaus to correct the mistake as soon as possible.
If requesting the credit report and analyzing it is too time-consuming, you should consider credit monitoring or identity theft protection services, some of which are free. These services alert you if your personal information has been compromised and will also notify you to any changes in your credit report.
If you have a credit card from a major bank such as American Express, Chase or Discover, make sure to check your benefits as free credit monitoring might be one of them.
Freeze your credit or place a fraud alert
If you find out you’ve been the victim of ID theft or you’ve been informed that your personal info was leaked in a data breach, freezing your credit or placing a fraud alert might be good next steps.
A credit freeze is a process whereby bureaus limit third-party access to your credit history. If someone were to try to apply for a new line of credit while your credit is frozen, the lender would not be able to access your credit history and will deny the application.
For this to be effective, you’ll need to place a freeze individually with each credit bureau, but you can do so in a matter of minutes from their websites by creating a free account. Whenever you’re ready to apply for a line of credit, you’ll need to go to that same site and lift the freeze or “thaw” your credit.
A fraud alert is slightly different and is typically placed once you know you’ve been a victim of ID theft. You’ll only need to contact one credit bureau, which will notify the others. With a fraud alert in your credit file, if a bureau receives a request to review your credit as part of an application, it will notify the lender that it needs to take extra steps to confirm the identity of the person who’s making the application. This means that they should contact you directly and ask whether it was you who filled out the application.
Repair any damage to your credit
If the fraudsters’ actions have already hurt your credit, you should start taking immediate steps to repair it.
First, dispute any incorrect items with the credit bureaus and lenders themselves. Note that this will be easier if you have proof that your identity was stolen. Check out our article on Detecting ID Theft — And The 5 Steps You Need To Take Immediately for the steps you need to take.
If your credit has been substantially damaged and there are multiple accounts already listed in your report, you could consider a credit repair company. These companies will examine all your reports for negative items and dispute incorrect or unfairly reported information for you.
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