If 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.
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.
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