The threat of identity theft continues to snowball in today’s digital age, affecting millions every year. Identity theft can damage your finances in a variety of ways, but how does identity theft affect your credit score?
Here, we delve into the various forms of identity theft, common tactics used by identity thieves, and, most importantly, how identity theft can affect your creditworthiness in the eyes of lenders and credit bureaus.
What Is Identity Theft?
Identity theft is a serious crime that occurs when someone steals your personal information and uses it to commit fraud or other crimes. It can be very costly and time-consuming for victims and can have a lasting impact on their finances, credit scores, and public records. Identity theft comes in different forms, each posing distinct threats.
Common Forms of Identity Theft:
- Financial Identity Theft:
Financial identity theft occurs when cybercriminals seek to exploit your personal information for financial gain. Financial identity thieves often may target your Social Security number, credit card number, and bank account number to open new accounts, make purchases, or transfer money.
- Social Security Identity Theft:
Social Security identity theft involves the unauthorized acquisition and misuse of your Social Security number (SSN). Your SSN is a unique identifier for various financial and governmental transactions. In the hands of identity thieves, it can open the door to fraudulently creating false identities, applying for credit, gaining unauthorized access to financial accounts, or even securing employment under your name.
- Medical Identity Theft:
Identity thieves also often seek to exploit your medical information. This can have heavy repercussions on your health, finances, and medical records.
Identity thieves can use your personal details, such as name, insurance information, and SSN, to obtain medical services and prescription medications or file false insurance claims. This not only jeopardizes your financial well-being but can also present threats to your health as identity thieves can change the information on your records, putting you at risk of receiving improper medical treatment.
Common Identity Theft Tactics:
- Phishing scams: This scam includes fraudulent activity that uses email, text messages, or phone calls to trick people into revealing personal information. Phishers often pose as legitimate organizations, such as banks or credit card providers, with an urgent request that involves submitting information such as passwords, credit card numbers, or SSNs.
- Data breaches:These are incidents where sensitive, protected, or private data is copied, transmitted, viewed, stolen, or used without proper authorization. A data breach can involve financial information, medical information, SSN, and more.
- Skimming devices: This fraud includes small electronic devices that attach to card scanners and are designed to steal credit card information. When you swipe your card through a skimmer, it captures the magnetic stripe data from your card. This data can then be used to create counterfeit cards or to make fraudulent purchases online.
How Does Identity Theft Affect Your Credit Score?
1. Fraudulent New Accounts With Missed Payments
If an identity thief gains access to your private information, they can secretly open new credit accounts or loans in your name. This can significantly negatively impact your creditworthiness. If the fraudster doesn’t make payments on the accounts they opened in your name, this can also be reflected on your credit report, negatively affecting your credit score and making it difficult to qualify for new credit.
2. Higher Credit Utilization Ratio
If an account opens in your name without your knowledge, it can also negatively impact your credit score by raising your credit utilization ratio, which is the measurement of how much of your available credit is being used. Credit bureaus can see increased credit utilization as a sign of financial distress, lowering your creditworthiness.
3. Unauthorized Credit Inquiries:
Identity thieves can apply for new credit in your name. When this happens, lenders check your credit report; this is called a hard inquiry. Each hard inquiry can leave a small, temporary impact on your credit score. If you have multiple hard inquiries in a short period, your credit score can suffer more significant damage.
How Can You Detect Identity Theft on Your Credit Report?
Catching the warning signs of identity theft as early as possible is crucial to mitigating damages. It’s essential to monitor your credit reports and be vigilant for anything that looks out of place, such as unfamiliar accounts, transactions, drastic changes in your credit score, or inaccurate personal information.
MyScoreIQ credit monitoring helps detect identity theft on credit reports by providing real-time alerts when a significant change occurs on your credit reports from the three major credit bureaus: Equifax, Experian, and TransUnion. These alerts include new accounts, inquiries, or changes to existing accounts. MyScoreIQ also provides users with a detailed breakdown of their credit reports so they can easily identify possible suspicious activity.
How Can You Help Restore Your Credit After Identity Theft?
Building back your credit after having your identity stolen is vital in helping ensure your financial health makes a full recovery. Working with credit bureaus and creditors is the critical first step. Filing a dispute with your respective credit bureau to challenge inaccuracies on your credit report gives you the opportunity to remove inaccurate debt and update your payment history, positively impacting your credit score.
Cooperating directly with creditors can help you strengthen your dispute claim to the credit bureau. Creditors can provide valuable information about fraudulent activity on your accounts. They can confirm the dates, amounts, and types of unauthorized transactions. Creditors may also be able to close fraudulent accounts and remove unauthorized charges.
Along with working with creditors and credit bureaus to restore your credit, you should also be mindful of the general best practices for building strong credit. Consider taking steps such as getting secured credit cards, making timely payments, keeping your credit utilization low, avoiding too many hard inquiries at once, and seeking professional credit counseling.
The pervasive threat of identity theft poses significant risks to your financial well-being and creditworthiness. It is essential to stay aware of identity thieves’ common tactics and goals and keep a close eye on your credit reports to reduce your risk of identity theft. If you have had your identity stolen, it’s important to help protect yourself by taking the necessary steps to restore your credit and mitigate damages.
MyScoreIQ credit monitoring service is a valuable ally in the battle against identity theft, offering real-time alerts and detailed credit report breakdowns to swiftly detect and address any suspicious activity.