How Identity Theft Affects Credit Scores

While the movie, “Identity Thief” has many funny scenes with Jason Bateman’s character trying to restore his credit rating, if you’ve been a victim of identity theft, then you know it is no laughing matter. It can take a lot of effort to clear your name and restore your credit rating. Here’s an overview of how identity theft can happen, how it can affect you and some steps you can take to prevent it.

What is identity theft? When someone opens accounts and spends money in your name, you’ve been the unfortunate victim of identity theft. Fraudsters can negatively impact your credit score by stealing your personal information and use it to open accounts, apply for credit and other loans or sign up for utilities such as cell phone service in your name. As a result, you want to take steps and extra caution to prevent your name, date of birth, Social Security number, or PIN numbers for accounts get into the wrong hands.

How can identity theft impact your credit scores?

A fraudster’s actions can add negative activity to your credit report. This lowers your credit score, and can limit your ability to qualify for new loans.

Your personal credit score is a numeric rating based on history of your spending and ability to pay your bills. For example, it can be based off of how many credit cards are in your name, if there are any late payments for your accounts, and the outstanding balance on your loans. The following actions from identity thieves could impact your credit ratings and prevent you access to loans and better interest rates.

1) New accounts and inquiries on credit

Typically once an identity thief gets a hold someone’s personal information they can use it to open a lot of new accounts. And whenever you open new accounts, it triggers credit companies take to make an inquiry on your credit score. Both actions have a slight negative impact on your credit score and when someone (even if it is not you) opens a lot of new accounts in your name in a short period of time, it has an impact.

2) Higher Balances on Accounts and 3) Late payments

Shortly after opening up new accounts in your name and getting access to a line of credit, a crook will go out and make a lot of purchases in your name and not pay the bill. Even if you are not aware of accounts, the late payments will show up in your name and credit report and have a negative impact on your credit score. And carrying higher balances that are close to your credit limit also have a negative impact.

How can you minimize the damage from identity theft?

Access your free credit reports each year – Every one of the major US credit bureaus (Experian, Equifax, and TransUnion) monitors everyone’s credit history. Did you know that everyone is legally entitled to a report from each credit bureau once a year for FREE under the Fair Credit Reporting Act? In order to get yours, visit the website, www.annualcreditreport.com. When you get your credit report, be sure to review for accounts and credit inquiries you don’t recognize. Also, look incorrect personal information associated with accounts listed in your name. These could be warning signs that an identity thief has access to your information.

If you do discover that you have fallen victim to fraud, you’ll need to file disputes with the credit bureaus, contact your bank(s) immediately, and possibly even file a police report to resolve the issue and remove the charges from your name. If you wish to be more proactive, many financial institutions offer monitoring services to give you a warning that there is unexpected activity on your accounts.

This article was contributed by Chase Sagum. You can read more of his contributed articles @ lexingtonlaw.com