Identity theft crimes grow in number every year, and the personal and financial effects they have can be devastating. In fact, between 2019 and 2020, these crimes grew by up to 45 percent. There’s no sign of these threats slowing down; in 2021, the total damages are estimated to be $713 billion. In total, 47 percent of all Americans were victims of identity theft in 2021.
Total complaints of identity theft to the Federal Trade Commission increased from 651,000 in 2019 to 1.5 million in 2020. Of all complaints received in 2020, 29 percent were related to identity theft.
One of the most common forms of identity theft is application fraud. In 2020, government document and benefit fraud alone increased by more than 1,600 percent. When your personal information falls into the wrong hands, your credit score may plunge, making it difficult to do anything from opening a credit card to applying for a new apartment lease. Read on to learn more about the various ways identity theft can impact your credit score.
How to identity theft impacts your credit score
There are many ways that identity theft can affect your credit score and personal finances. Because your credit score is calculated based on a variety of factors, it’s important to understand how each element of your score can be impacted by identity theft.
One factor in determining your credit score is your payment history. When you miss a credit card payment or pay it 30 or more days after the due date, your score suffers. This factor accounts for 35 percent of your credit score, making it is the largest individual factor in calculating your score.
Even if you’ve spent years making timely payments, identity theft can quickly cause this part of your score to plummet. As an identity thief opens new credit cards in your name, these bills will go unpaid. After 30 days, those missed payments are reported to the credit reporting agencies, and your credit score will suffer as a result. While you aren’t held liable for fraudulent charges, it will take time for your credit score to recover as you work through proving which charges were fraudulent and request a change to your score.
Higher debt to credit ratio
When accounts are maxed out, it creates a higher debt-to-credit ratio. The debt-to-credit ratio is how much of your available credit is currently being used. If you’re using a large amount of your available credit, your credit score may drop as a result. Similarly, if you’re using a small amount of your overall available credit across all credit accounts, your score may see a boost. Experts recommend keeping your credit utilization ratio below 30 percent to prevent a negative impact on your credit score. Your credit utilization rate accounts for 30 percent of your credit score, falling just below the percent that payment history accounts for.
Having a healthy debt-to-credit ratio signals to lenders that you are financially responsible and using your credit in a responsible way. However, if an identity thief opens an account or two in your name, your credit utilization rate may jump quickly, impacting your score.
New accounts and account age
The credit reporting agencies reward you for having a lengthy credit history. This is calculated in a few ways. One thing that they consider is the average age of your credit accounts, as well as how long your oldest account has been open. Another is how many new credit accounts you’ve opened recently.
When you open a new line of credit or credit card, your credit score may see a drop. Often, this drop is small. But if an identity thief opens several accounts, this is yet another way that your score may be impacted.
When a new account is opened, often times the lender will run a credit inquiry to determine whether you are eligible for an account or loan and how much credit they can give you. There are two types of inquiries: hard credit inquires and soft credit inquiries. The latter does not impact your credit score, but the former does. A new hard inquiry will stay on your credit report for up to two years, and it will affect your score for up to 12 months.
Hard credit inquiries are common for credit card applications and may cause your score to drop, particularly if you have too many in a set time period. This is why it’s recommended that you wait 90 days between each credit card application or other activities that may require a hard credit inquiry. Of course, if an identity thief opens a new account or several, this can result in a number of hard inquiries in a short period of time, in addition to any that you run yourself during that time.
Often called your credit mix, another factor that goes into calculating your credit score is the type of accounts you have. These vary from mortgage debts, installment loans, revolving debts, and the total number of open accounts. Ideally, a healthy credit mix shows that you can handle a variety of different loans. It accounts for a total of 10% of your credit score. Identity theft may lead to too many of one type of account open, which may impact your score.
The implications of identity theft
Identity theft can impact a variety of factors that go into calculating your credit score. Depending on the extent of the impact, this can affect your finances in a variety of ways.
If a criminal is successful in applying for a loan or opening a new line of credit using your identity, it can impact your credit score for years to come. Creditors look at your credit score as an indication of what kind of client you would be. Having any history of identity theft means that it will be flagged when lenders run a credit check. While there are laws preventing creditors from denying an application because of a fraud alert, until your credit score has been adjusted after you prove that you were impacted by identity theft, it may be tough or even impossible to get a loan or open a new line of credit.
If you are able to get a loan or open a new credit card before your score is repaired, you may face high-interest rates that you’ll be locked into even after your credit score improves. This can put families and individuals in a tough situation if they are forced to seek a loan or credit during this time because of financial hardship. After identity theft, you may also have to have a credit freeze in place, which can make it difficult to make your own purchases.
Recovering from identity theft takes time, and may impact your ability to do things like buying a new car, apply for a student loan, and more until your identity is restored.
Recovering from identity theft
Depending on the extent of the damage and how quickly you caught it, recovering from identity theft can sometimes take years. The Fair Credit Billing Act states that all of the fraudulent charges will be removed. Also, you will not be held liable for any charges that occur due to identity theft.
Unfortunately, realizing that you’ve been the victim of identity theft isn’t always as easy as it sounds. And putting a stop to the theft and reporting your damages can sometimes get complicated.
The most important thing is to act fast. After two days, you could be held responsible for up to $50 of the fraudulent charges. The amount you would be accountable for rises after 60 days. It will then increase to $500. In the meantime, you’ll be left dealing with the financial fallout. If you need a loan, want to buy a car, or have other financial needs, you may struggle as a result of your lowered credit score, even if the lower score occurred by no fault of your own.
Protect your identity with LifeLock
Stopping identity thieves before they strike is the best way to protect your financial future. LifeLock protects you from the effects of identity theft and gives you the tools you need to safeguard your finances. Investing in identity theft protection before you become a victim gives you peace of mind and security.
With Norton 360 with LifeLock, you get the identity theft protection of LifeLock, as well as the security and VPN services Norton is known for, in one comprehensive plan.
Norton’s secure, no-log VPN makes it easy to surf the web safely from anywhere. The Password Manger, makes it easy to set secure passwords without worrying about forgetting or losing them. From issuing credit alerts to helping you follow and understand every change in your credit report, LifeLock is there every step of the way to protect your personal information and your finances. If you do become the victim of identity theft, we will connect you with an Identity Restoration Specialist. This saves you time and money as we make sorting out any potential identity theft threats simple. Our Million Dollar Protection™ Package guarantees up to $1 million in coverage if you become the victim of identity theft while under LifeLock’s protection.