Identity theft may have long-lasting effects for the victim beyond the hassle of trying to deal with the creditors. If you fall victim to one of the most severe forms of ID theft, it can take years to clear your name and restore your credit. Even in a small instance of this type of fraud, such as a fraudulent charge on your account, there may be immediate effects that may impact your credit report. It is important to understand the role this ever-increasing crime plays in your credit score to protect yourself as much as possible.
Immediate Effect
The most common form of identity theft is someone taking an existing line of credit or bank account, typically a credit card or debit card, and using it to make fraudulent purchases. Most banks and credit institutions have security measures in place to spot these charges and get them removed from your account right away. If a person fraudulently charges a substantial amount to these cards, then it could cause you to lose up to 100 points on your credit score. The reason it causes this drop in is that you have higher balances on your existing accounts. The closer your balance reaches to the credit limit, the lower your credit score goes. Once everything has been fixed, your score will go back to normal. Although this usually takes a short period of time, it may take a few weeks or months in some cases.
Credit Added to Your Account
Another common type of ID theft is using a person’s social security number and other personal information to open a new line of credit. Every new line of credit impacts your credit score. If you open just one small line of credit and take care to pay everything on time, then it only has a small effect on your score. However, if you open several new lines of credit, it could negatively affect your score.
This becomes even more damaging when the person committing fraud does not make payments. Late payments have a significant negative impact on your credit score. If someone has opened several lines of credit in your name, made charges, and then chosen not to pay it, then you will see your credit score dropping quickly. This is also the hardest to clean up, since accounts remain on your credit report for years. However, as a victim you can ask for credit agencies to block the information, but you will have to show proof.
Excessive Inquiries
Another aspect that may affect your credit score is a significant number of inquiries on your credit report. Routine inquiries that come from you applying for a credit card, mortgage, or auto loan will have minimal effect. However, when someone tries to open several accounts under your name, then there will be multiple inquiries that could end up affecting your credit score. Therefore, when you clear up your ID theft, it is important to also release the fraudulent inquiries as well as the accounts.
A poor credit score can make it difficult for you to get credit for a home mortgage, car loan, or credit card. It will also increase your interest rate, costing you more money. Some employers, apartments, insurance, and other places also may see you as a poor candidate if you have a low credit score. This is just another way that ID theft can hurt a lot more than your bank account. One option is to take advantage of credit repair services, you can review some of the more reputable companies at creditrepairconsumers.com. By taking measures to protect yourself and taking action when fraudulent charges happen, you can minimize the damage to your credit score.