You stick your credit card into an ATM to grab some cash on your way home from a trip. Unbeknownst to you, someone has installed a barely noticeable electronic device over the card slot of the machine, called a “skimmer.” A few days later, you begin to notice fraudulent charges on your accounts. Someone has stolen your identity by committing credit card fraud.
- Credit card fraud and identity theft are widespread in the US.
- Identity theft can ruin your credit score, impacting most of its components.
- The extent of the damage to your credit score and life depends on how much of your personal information criminals can steal and how quickly you react to the theft.
- Report the crime as soon as possible and dispute the fraudulent events on your credit report.
Identity theft and credit card fraud are common in the US. According to a joint report by GIACT® and the Aite Group, in a December 2020 survey of 8,653 U.S. consumers aged 18 or older, 47% of U.S. consumers surveyed experienced identity theft; 37% experienced application fraud (i.e., the unauthorized use of one's identity to apply for an account), and 38% of consumers experienced account takeover over (i.e., unauthorized access to a consumer's existing account) over the past two years.
If criminals gain access to your credit accounts, they can wreak havoc on your finances and credit score, which is bad news because your credit score is the official reflection of your financial health.
In addition to damaged credit, being the victim of identity theft also exposes you to tax debt, possibly a criminal record, and psychological strife resulting from feelings of vulnerability and helplessness.
How Can Identity Theft Impact Your Credit Score?
The extent of the damage identity thieves can inflict on your credit score depends on how much of your personal information they manage to access.
- If they only grab your credit card information, the damage will likely be limited and relatively easy to correct.
- If they get their hands on your Social Security Number, name, address, etc., you are looking at significant and lasting damage to your credit that may take years to undo.
How much damage these criminals can inflict on your credit also depends on how quickly you notice their criminal activities and react to them.
Identity theft can impact almost every component of your credit score, beginning with your payment history and wrapping up with your number of credit inquiries.
Credit Card Fraud and Your Payment History
How you handle your payments and whether you make them on-time account for 35% of your credit score. Payment history is the most heavily weighted credit score factor. It makes sense for creditors and credit reporting agencies to see your ability to repay credit as the top indicator of your creditworthiness.
Criminals who gain access to your credit card aim to rack up as many bills as possible in your name, leaving them unpaid. When they do that, they inflict missed payments on your credit report, dropping your credit score. If you catch the illicit activity quickly, you can have the fraudulent charges removed relatively quickly as well. Your credit score may take a while to recover, however.
Identity Theft and Your Credit Utilization
Credit utilization, the expression of how much credit you use versus how much credit you have available, accounts for 30% of your credit score. An identity thief will aim to run up your balances as quickly as possible to wring as much “value” out of you, the victim, as possible. Maxed-out credit cards will ruin your credit utilization ratio, taking it well above the recommended 30% mark. Thus, your credit score will suffer.
On the bright side, once you dispute and remove the fraudulent charges, your credit utilization, and with it your credit score, should recover in time.
Credit Inquiries and Identity Theft
When you check your credit report/score, you make a soft inquiry that doesn’t affect your credit score. When you open a new line of credit, you make a hard inquiry that will register as such on your credit report. When too many such hard inquiries show up on your report, your credit score will suffer. Your inquiry profile accounts for 10% of your credit score.
Fraudsters who gain the ability to open new lines of credit in your name will likely do just that. They will generate a flash-flood of hard inquiries on your report, causing your credit score to tank.
Credit History and Credit Card Fraud
The age of your credit accounts for 15% of your credit score. The longer you’ve handled credit well, the more creditworthy you are in the eyes of reporting agencies and creditors.
When an identity thief opens several new lines of credit in your name, the average age of your credit suffers. Thus, your credit score takes a hit as well. When you manage to have the fraudulent accounts removed, however, your credit history rebounds.
What Can You Do About Identity Theft-Induced Credit Score Damage?
- Contact your credit card issuer as soon as you notice fraudulent charges. Notify the issuer of the fraudulent credit card accounts and charges in writing.
- Contact one of the credit reporting agencies and institute a fraud alert on your account. With such an alert in place, any credit-related maneuver involving your SSN triggers additional identity verification.
- Depending on the gravity of the data breach, consider a credit freeze. Such a freeze prevents creditors from seeing your credit report.
- Dispute the fraudulent events on your credit report with a credit bureau. Do it in writing.
- Report the identity theft to the police and keep a copy of the police report.
- Create new passwords for every one of your online accounts.
- Pursue justice relentlessly. Do not settle for reporting the crime. Follow up and expedite resolution as best you can.
Identity theft is a form of financial crime from which you can never fully insulate yourself. You can, however, cut your exposure by not readily sharing your personal information, monitoring your credit report regularly, and keeping an eye on your credit card accounts.
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The data and statistics referenced come from multiple credible resources that are cited throughout. ClearOne makes no representations or warranties regarding the accuracy of the information from these various resources and is providing the content for informational purposes only.