How Identity Theft Affects Your Credit Score?

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Maintaining bank accounts and credit resources by the ease of a single click was good news of all of us. But the security of online transactions had always been questionable. In 2017 Equifax Inc. failed to protect the sensitive information of 170 million consumers. In compensation, Equifax agreed to pay 700 million USD to the affected US consumers, which was a shock for them.

Undoubtedly, identity theft is one of the biggest nightmares of a modern consumer. Most of the people believe that identity theft only affects their financial resources. However, the situation gets a whole lot worse for the victims and their families. Modern-day ID thefts affect the credit scores of the victims adversely.

Impacts of Identity Theft on Credit Scores

TransUnion states that every minute, 19 people in the US fall prey to the heinous act of identity theft; affecting the credit scores of the victims for long-term.

Payment History

The formula for a good credit score lies in paying bills and outstanding dues on time. Payment history makes up to 35% of the credit score. Any delay in paying the debts will negatively affect your FICO score and Vintage Score. These scores let financial institutions predict your ability to repay debts.

Thieves stealing your information have a motive to use your name for their financial benefits. They apply for loans and new credit cards, use them mercilessly and never repay. Credit card institutions report outstanding payments after 60 days to credit bureaus. Your name added in the list of deadbeats ruins your payment record. It could take years to correct the damage done by the tag of nonpayment of debts on a credit report. However, repercussions of ID theft can be controlled by reporting it asap.

Involvement of Collection Agencies

A thief knows that he has no legal responsibility of paying the debts. Knowing so, he applies for too many loans and lending options — all these debts piled up against the unaware victim. After surpassing the payment days, unpaid debts are handed over to collection agencies.

Collection agencies inform the credit bureaus. Every unpaid debt hurts the credit score of the victim. The decline in credit score due to ID theft remains irreversible for an extended period.

You can file disputes to clear your name asap you found about your ID theft.

Max Usage of Credit Limit

A thief knows that his fraud will not go unnoticed for an extended time. This psychology of thieves sends them on the spending spree. Unaware of your increasing unpaid liabilities, you will notice a sudden declining trend in your credit score.

Credit bureaus check credit utilization ratio of the applicant for calculating the credit score. More than 30% usage of the total credit limit indicates low repaying capacity and higher debt on the user. Higher credit utilization ratio due to the senseless use of credit cards by the thieves damages the reputation of the victim.

Too Many Credit Cards

The thieves order several credit cards by using stolen information. Each new application of a credit card adds an inquiry on your debt repaying abilities. Lenders may request for a hard inquiry which derogates your credit score a few points on every request.

Credit bureaus and lenders mark consumers with a higher number of credit cards with low financial resources. These inquiries on a credit report affect the credit score. Application of credit cards by ID thieves on your information lowers your credit score due to several inquiries.

Impact of Identity Theft on Credit History

Credit history also plays an essential role in the calculation of credit score. According to Berry Paparno (credit score expert), older credit cards improve the FICO Score of a consumer.

Credit history of a consumer adds 15% of the total FICO score. Your average credit history would decrease due to new credit cards applied in a short time; affecting your credit score until the settlement of disputes.

Bottom Line

Identity theft is a heinous act. According to the Javelin research report, account takeovers raised to three times in 2017 and caused a loss of 5.1 billion USD. Derogation in credit score is the direct negative effect of identity theft. It could be reversed with the settlement of disputes with lenders. But, the social and emotional repercussions of identity theft last longer than expected.

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