Identity Theft and Your Credit Score

Identity theft is something no one should have to experience. However, it’s estimated over 17 million individuals in the United States fell victim to identity theft in 2017. Still, not everyone understands the ins and outs of identity theft yet despite this crime affecting many people.

In today’s world, identity theft is largely a type of fraud associated with making purchases or taking out loans in someone else’s name. Intercepting tax returns is another common reason for identity theft. Anyone who has experienced it knows identity theft is more than just an inconvenience. It can bring certain aspects of your life to a grinding halt.

The headaches and heartaches of identity theft can lead to issues with your credit score.

Why Does Identity Theft Hurt Your Credit Score?

Identity theft can damage your credit score in more than one way. While some of these are going to have a greater effect than others, there’s no such thing as a good blemish in your credit. This is especially true when the thing hurting your credit wasn’t even created by you.

These are a few of the most common ways your credit is going to be damaged by identity theft:

  • New lines of credit are going to start showing up. This on its own isn’t going to be the thing that hurts your credit score. The problem lies in the fact that the identity thieves aren’t going to be paying those loans. All those lines of unpaid credit are going to be on your credit report, which is going to negatively impact your score every time there’s an unpaid bill.
  • More credit inquiries — like when an identity thief starts trying to open credit cards in your name — typically lead to a slight reduction in your credit score. While this isn’t going to do nearly as much damage as unpaid bills, it’s worth mentioning. A lender runs a credit inquiry every time you apply for a line of credit. If an identity thief is doing this repeatedly in your name, it can lead to a real reduction in your credit score.
  • Your unpaid bills and loans will end up in collections. Eventually, lenders are going to sell your delinquent loans to collections agencies. This will show up as a collections account on your credit report.
  • Higher levels of credit utilization can have a negative impact on your credit score. Credit utilization ratio is the amount of credit you use relative to the total amount you’re allowed. It’s recommended that you keep credit utilization at 30 percent or lower. However, when someone steals your identity, it can go much higher than that

What Can You Do to Limit the Damage of Identity Theft?

First, make sure that drop in your credit score is a result of identity theft and not some other cause. For example, people who have enrolled in debt settlement have noted in Freedom Debt Relief reviews that their credit scores decreased the longer their debts were delinquent — until they were able to reach agreements with their creditors and get their creditors to report their debts paid in full or settled to reporting bureaus.

This is just one example; every financial decision you make can affect your score. Consider the state of your finances: How much of your available credit are you using? Have you missed any payments lately? Did you close any old credit accounts, bringing down your available credit limit and sabotaging the length of your credit history? Is it possible your spouse or partner made that charge or opened that card without you knowing? In other words, count yourself out before assuming an identity theft has occurred.

No one wants to deal with the aftermath of identity theft. But acting right away when you notice something’s wrong can save you a lot of problems down the line.

The first thing to do once you’re sure is contact whatever financial institutions connected with the suspected identity theft. The sooner you do this the more likely you’ll be able to recover your money.

Once you’ve reached out to the organizations where you think the thief committed fraud, it’s time to put an alert on your credit and see your credit report. This will let credit reporting agencies know you’re a victim of identity theft and allow you to see if any other suspicious activity is showing up on your credit report. You should also notify the FTC and the police about the fraud.

There’s nothing pleasant about identity theft. But you can take action to limit the fallout from this unfortunate crime.