2/2/2013 3:15 AM ET|
4 ways ID theft affects your credit
The immediate damage of identity theft can be substantial, making it even more important to check your credit reports regularly.
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.
More from Credit.com:
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It's "Darned if you do and Darned if you don't"! There is no way to come out ahead when working with the
credit bureaus and doing "the right thing" to clear up credit matters. You lose big time on your score once you
try investigating your report. You lose points dramatically once you dispute anything on your credit bureau reports.
The bureaus do not care and in fact, their customer service people could care even less and seem to delight in the
power they have been given to take your call and then refuse to help you or answer your questions.
I would assume a lawyer could do better working on your behalf, but then who has the money to pay an attorney?
If we cannot pay our charge cards, and cannot borrow and cannot get new charge cards to prove we can pay on time,
then how can we pay a lawyer?
There is no winning for anyone trying to clean up their credit. And as a veteran, there is no help for us either and
especially if our credit score is not over 640 or more. Service to your country is not a guarantee you can buy a home
or get a loan to do so. It's a terrible joke on service members.
The Reports need to state that they are "INACCURATE" at the TOP of every page and DO NOT follow any standard accounting practices. The Banks create their own Fraud situations and then raise the Interest Rates to Astronomical Levels which is a Fraud on top of a Fraud. And, the Insurance Companies run their own Frauds....a 3rd party needs to be assigned for ALL CLAIMS to eliminate this other type of Fraud/Scam that this other Group is running. Consumers should have the "option of opting out" since the reports are inaccurate typically.
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