What You Need to Know about Your Credit Score and Identity Theft
Published on November 22nd, 2019 by CreditFresh
If identity thieves find your personal information, they may take your credit score for a ride — which may make it harder to get a line of credit in an emergency.
You may not have to scroll for long on a news app before you spot a story about identity theft. Data breaches make the news fairly often— whether it’s the ongoing saga of Equifax’s two-year-old hack or something more recent.
Identity theft is a crime that’s growing at alarming speeds, turning more unsuspecting consumers into victims each year.
That’s obvious enough, but what might not be as clear is how identity theft may affect your credit history.
If you catch it early enough, you may only need to temporarily freeze your credit and cancel any accounts that were fraudulently opened. But if an identity thief goes unnoticed, they may tarnish your credit history in a way that may make getting a line of credit a challenge when you need help dealing with an unexpected financial emergency.
10 Quick Fraud and Identity Theft Statistics
Before we zero in on the effects of identity theft in your personal file, let’s zoom out to see the widespread effects of fraud across the country.
Take a look at these ten fraud and identity theft statistics to see just how prevalent and serious identity theft crimes have become.
- The Identity Theft Resource Center (ITRC) reports the number of consumer records exposed in data breaches increased by 126 percent from 2017 to 2018. All in, more than 446 million records containing personal information were exposed last year.
- The Federal Trade Commission (FTC) received nearly 1.4 million fraud reports in 2018.
- Consumers collectively lost $1.48 billion due to fraud in 2018 according to the FTC, but the median loss per person was much lower at $375.
- The same report shows imposter scams were the top category of fraud in 2018.
- Florida had the highest number of fraud and other reports, with 210,174 reports.
- Georgia had the highest number of identity theft reports, with 23,871 reports.
- A 2018 telephone survey found 60 percent of American adults admit that they or an immediate family member have been a victim of a scheme to defraud them.
- Five percent of people experienced identity theft in 2018, impacting more than thirteen million Americans.
- The biggest data breach to date targeted Yahoo in 2013, affecting all 3 billion of its users.
- The biggest data breach of 2019 has nearly doubled the figure in the first of our identity theft statistics. First American Financial Corp. exposed 885 million records by publishing customer’s bank transactions and Social Security Numbers on its website.
Can Identity Theft Affect Your Credit History?
Yes! As you’ll see later on, your credit history and identity theft may share a relationship. Until you manage to address a possible fraud in your file if your identity has been stolen, it may have an impact on your history.
While the cold, hard identity theft statistics may illustrate how widespread fraud is, they fail to demonstrate how it may affect you.
This is why we’re shining a spotlight on the relationship your credit score and identity theft share — specifically how fraud may impact the five factors involved in generating your history.
Let’s take a look at them below.
1. Payment History
Why do you pay your bills? While you may get some personal satisfaction out of clearing your debts, financial obligation is likely the real reason why you do it.
If you don’t, there may be consequences — things like late fees, financing charges, and potentially even derogatory entries in your file.
An identity thief doesn’t care about these things because it’s not their name or financial profile attached to the stolen account — it’s someone else who will be stuck dealing with the fallout while they may get off scot-free.
What Does Paying Late Do to Your File?
It usually takes 30 days or more from a payment due date for a financial institution to raise the alarm about tardy payments. Of course, there may be some exceptions. Some financial institutions don’t report payment activity to the major credit agencies — good or bad.
If they do, a bill that’s late by 30 days or more may attach a delinquency to your file. Even just one delinquency may dock points from your overall score.
Usually, a delinquent payment stays in your file for up to seven years. However, if you manage to dispute this payment and successfully prove it is fraud, you may have it erased from your record.
Until then, this delinquency will remain in your file. If your bill continues to go unpaid, the account may be turned over to a collection agency — which may add another derogatory item to your file.
Pay Bills on Time to Build Good Credit History
These derogatory marks aren’t unique to identity theft. You run the risk of adding a delinquency in your file any time you miss payments.
With 46 percent of Americans regularly paying their bills late, it’s more common than you think. And it happens for a variety of reasons.
You might get sick enough that you can’t work. You might spend beyond your means. You might get laid off. Or you might find your mailbox full of unexpected emergency bills that you can’t ignore.
A personal line of credit may be an option when you need help, but only in unexpected emergencies. If you’re struggling to pay regular, expected bills, it may not be the right choice for you.
2. Accounts Owed
Waiting to use a personal line of credit in a true emergency is one of the hallmarks of good money management. But when it comes to your fraudster, they don’t care about using a personal line of credit responsibly.
For the average identity thief, it may be a race against time to use up as much of the available credit as possible before they’re found out. They may max out a line of credit or credit card as soon as they can.
Carrying a high balance may impact your history negatively — even if you didn’t open the account personally. It may affect your credit utilization ratio, a calculation that compares the amount of credit you use to the overall limit of the account.
Generally, the higher your utilization rate is, the worse it is for your history. A utilization rate may suggest you’re overextending yourself, and you may have trouble paying back what you owe. This may flag you as a borrowing risk to financial institutions.
What Does a High Balance Do to Your File?
There are no hard-and-fast rules dictating exactly what a high rate will do to your history. Like so much of your credit, it’s personal — it depends on what’s already in your file.
To illustrate this point, FICO compares Sophia and Maria, two imaginary customers, to see how their scores would respond to the same mistakes.
In this scenario, Sophia starts with a FICO score of 607, while Maria has a score of 793.
If Sophia maxed out her credit cards, she would drop down between 560 and 580. That’s a loss of 27–47 points.
Maria, on the other hand, would fall between 665 and 685 — losing 108–128 points for maxing out cards.
Why does this happen?
Before maxing out her cards, Sophia already had a relatively high utilization rate of 67 percent at the start. This would have been factored into her profile before she maxed out revolving accounts, which may be one of the reasons why her score was lower than Maria’s.
Maria, however, started with a ratio of just 12 percent. This is a fantastic percentage to have, but it’s more vulnerable to change once a credit bureau sees risky borrowing behavior.
Generally, you stand to lose more by maxing out revolving credit accounts if you have good or excellent credit.
This is why it’s important you avoid these financial mistakes to maintain your history. The next time you grab a line of credit or credit card for everyday spending, think twice. If you can’t pay off your balance by the due date, you may be impacting your credit history.
3. Length of History
Knowing fraudsters, they may not stop at opening just one account. They may be more likely to open several loans and lines of credit all at once to get as much cash as possible.
The extent of your history may take a hit as a result.
Every new account affects the average age of your existing accounts. If you have a long and varied history, with accounts that are several years old, an influx of new accounts may not have as a significant impact on your average age.
However, if you have a thin file and are only just starting to build up credit history, several new accounts could drop down the overall age of your credit accounts considerably.
4. New Credit
New accounts won’t just impact the average age of your history. They may also add entries to your file that raise concerns.
It depends on the types of accounts the thief decides to open.
Some financial institutions review an application for a new account by performing a hard inquiry. This lets the financial institution determine if they are willing to lend to you.
Anytime a financial institution performs a hard credit check, this adds a hard credit inquiry entry into your file — letting future institutions know the last time you applied for a new credit account.
Of course, there are some exceptions, as some financial institutions perform a soft inquiry, which typically does not leave behind any trace in your file.
When it comes to hard inquiries, they may dock as many as five to ten points from your score. However, like with FICO’s experiment with Sophia and Maria, the exact impact these inquiries have may depend on your file.
It’s also important to note that subprime credit reports make no distinction between hard and soft inquiries.
5. Credit Mix
This last category is all about striking a balance between different kinds of accounts. Generally, having a variety of accounts that may include a mortgage, installment loan, student debt, and a personal line of credit is a good thing.
But simply having variety isn’t enough. A credit bureau will also consider how well you manage each of these accounts.
Generally, a balanced mix of accounts will only work in your favor if you manage to keep each of them in good standing by paying bills on time and keeping revolving balances low. If you can’t afford to pay off these accounts by their due date, a variety of accounts may actually hurt your history.
Again, these aren’t the average fraudster’s priorities. While they may increase your account diversity, ultimately, they won’t maintain these accounts in ways that will build up your history.
Does a Data Breach Automatically Mean You’ll Become a Victim of Identity Theft?
No. Having your personal information exposed in a breach doesn’t automatically mean you’ll have your personal information stolen, but it does increase the chances of it happening.
And that’s not something you want.
As we showed you today — through our fraud and identity theft statistics as well as the relationship your credit score and identity theft share — fraud may have an impact on your credit history. This impact may significantly alter your ability to get a personal line of credit or other credit and loan products when you need help in an emergency.
Your Credit Score and Identity Theft Need Attention Fast
It makes sense to take your time before you make some financial decisions.
When it comes to choosing how to invest in your retirement, comparing line of credit rates, and even deciding whether you have the budget to upgrade your phone, it’s best to sleep on these types of decisions. This way, you have time to research the options that fit your finances best.
But when it comes to possible identity theft? Then the old adage is true: if you snooze, you lose. Your procrastination may give a thief the time they need to open loans and max out limits.
If you suspect your information has been exposed, take action right away. Get in touch with the major credit agencies and provider of the affected account to start your recovery as soon as possible. Regular credit monitoring may help you catch future signs of identity theft, dispute errors, and freeze your report before things get worse.