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If you've been a victim of identity theft, 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, the 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."

Robert Brennan  a consumer law attorney who represents ID theft victims, agrees. "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, balances that are close to their credit limits can have a significant impact on your 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. But they usually aren’t paid at all, and that only makes matters worse.

Late payments: Some consumers don't learn that their information has been compromised until after the damage has been done. In this 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.

Inquiries: Every time a scammer applies for credit using another consumer's personal information, that inquiry is recorded on the victim's credit reports. 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:

Likewise, when an identity thief applies for credit in your name, it produces the same hard inquires and the same potential lowering of credit scores. "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 trade lines -- he 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. If you act quickly, any problems created by identity theft should be solved before any long-term damage is done.

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