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Four Ways Identity Theft Can Affect Your Credit

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4 Ways Identity Theft Can Affect Your CreditIf you’ve been a victim of identity theft then you know how much work it can take to clear your name. In theory, identity theft should not have an ongoing impact on your credit reports or scores. But the reality can be much different.

“Long term, there should be no damage to your credit from ID theft,” says Barry Paperno, community manager for Credit.com. “But in the short run, you could lose more than 100 points from your score and not regain all of them until after the fraudulent credit information is removed from your credit report, which could take weeks, and in some complex cases even months.”

Consumer law attorney Robert Brennan, who represents consumers who have been victims of identity theft, agrees; adding “Identity theft hurts your credit in several ways, both known and unknown to the average consumer.”

Here are the top four ways identity theft immediately impacts your credit:

Higher balances on existing accounts

The fastest growing type of identity theft reported in 2010 involved the use or misuse of an existing credit account, according to a report by the Department of Justice. Approximately 5.5 million households were affected by this type of fraud that year.

If you aren’t monitoring your accounts closely, you may not catch a sudden increase in the balance on your credit cards. Unfortunately, though, credit card balances that are close to the limits can have a significant impact on your credit scores. “High credit utilization (balance/credit limit) can drop a high FICO score (780+) by as much as 45 points,” explains Paperno.

The good news here is that once those new charges are successfully disputed, your credit scores should no longer be impacted by those fraudulent charges.

New accounts

When a crook uses your personal information to open a new account, that account will typically appear on your credit reports. “Any new account added to your credit report can cause a slight drop in your score,” says Paperno. Even if those accounts were paid on time, they would have an impact on your credit scores.

But they usually aren’t.

Late payments

Some consumers don’t learn that their information has been compromised until after the damage has been done. In this not-uncommon scenario, the thief opens new accounts, makes purchases, and pays the bills for a little while, then bails. “The identity thief will often crash the consumer’s credit score by not making payments on the fraudulent account,” says Brennan.

The damage can be severe. “Even a minor delinquency, such as a 30-day late, can cause a high FICO score (780+) to lose as much as 100 points,” Paperno warns.


Every time the scammer applies for credit using another consumer’s personal information, that “inquiry” is recorded on the victim’s credit report. While multiple inquiries don’t typically have a significant impact on one’s credit scores, they can add up.

And that can be hard to clear up. Brennan explains:

When a consumer applies for credit, he or she gets “hard inquiries” on their credit reports, which themselves can depress credit scores because credit scoring models consider “hard inquiries” to be a signal that a consumer is shopping for credit. Identity thieves applying for credit can produce the same hard inquiries on a consumer’s credit report, which in turn will depress credit scores. When a victim of identity theft is cleaning up their credit, not only must they clean up the fraudulent tradelines—the records of payments on credit accounts—but they must also clean up the “hard inquiries” to make sure that any that have been made by identity thieves are removed.

You Have Rights

The Fair Credit Reporting Act, the law that regulates credit reports, requires credit reporting agencies to block information on credit reports due to fraud. Specifically, it says:

§ 605B. Block of information resulting from identity theft [15 U.S.C. §1681c-2]

(a) Block. Except as otherwise provided in this section, a consumer reporting agency shall block the reporting of any information in the file of a consumer that the consumer identifies as information that resulted from an alleged identity theft, no later than 4 business days after the date of receipt by such agency of —

(1) appropriate proof of the identity of the consumer;

(2) a copy of an identity theft report;

(3) the identification of such information by the consumer; and

(4) a statement by the consumer that the information is not information relating to any transaction by the consumer.

That’s one good reason to monitor your credit reports and investigate suspicious activity immediately. Act quickly and hopefully the problems created by identity theft will be gone before any long-term damage is done.

Image: Dan4th Nicholas, via Flickr

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  • http://www.credit.com/ Credit.com Credit Experts

    Cindy —
    I’m not quite clear on what you mean. Your credit reports are basically credit histories; they don’t include a score. Credit scores are three-digit numbers that are calculated based on the information in your credit reports. But if you mean that your credit reports have inaccurate information, you can — and should — dispute it. Here are some resources from Credit.com that you may find useful:

    How to Dispute an Error on Your Credit Report

    Credit Reports vs. Credit Scores: What’s the Difference?

    4 Credit Card Mistakes That Might Be Damaging Your Score

    • may

      My mom have credit cards in my name,its been 14 years ago, can she pay back that money with out going to jail, my credit is bad.

      • http://www.credit.com/ Credit.com Credit Experts

        Is this for charges made 14 years ago? Or current charges? (If charges are old, the debts are almost certainly uncollectable; if charges are recent, on a card that is in your name, that’s a different story. (See Does Your Old Debt Have an Expiration Date?)But nobody is going to send her to jail for repaying a debt. But please close any cards that are in your name and should not be.

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  • Hl

    Hi, i am a victim of id theft, my credit score dropped more than a 100 because of the negative account that the bank reported to my credit bureaus. It says that i have late payments. I have reported it to fraud department but it took 4 months and still the case is in progress. Should i be making the payment until they reverse the case? (All the balance in my acc was fraud) do you think that after they reverse the case from credit bureaus, the score will go up 100points?

    • http://www.Credit.com/ Gerri Detweiler

      Not sure what you mean when you say you reported it to the fraud department? Have you file a police report and filed an id theft report with the credit reporting agencies?

      • Hl

        I have called the bank they transfer my case to fraud department, i did file a police report and Reported 3 credit bureaus to monitor it for 90 days. But the question is should i make a payment so that i will have no late fee that make my score dropped? And wait until they solve n reverse the negative account and the bank will refund the money?

        • http://www.Credit.com/ Gerri Detweiler

          If there are charges that are not fraudulent you should continue to pay those. But otherwise I don’t see why you would make payments unless I am missing something. And why is this on your credit reports if it is fraudulent? Something doesn’t sound right here. Have you disputed the late payments with the credit reporting agencies and included a copy of your police report?

          • Hl

            There was some misunderstood, i sent form to them but they didnt recieve it and they said they didnt hear from me so they said i have to be reaponsible for this, i am really stress with how the fraud department work, i dont know what to do, they just ask me to wait because the form they havent recieve it yet. They really handle my case very poorly. Thank you for your advise.

          • http://www.Credit.com/ Gerri Detweiler

            If you can’t get this resolved I suggest you file a complaint with the Consumer Financial Protection Bureau or consider talking with a consumer protection attorney. Hope it gets resolved soon!

          • Hl

            Im glad that i have discussed this matter with you, now i know what to do if they cant resolve my issue. Thank you so much for your help.

          • http://www.Credit.com/ Gerri Detweiler

            You are welcome. Don’t give up. Let us know what happens.

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