Your credit score is more than just a number; it represents your perceived ability to repay a loan. The higher your credit score, the more attractive a loan candidate you are. And the more lenders are inclined to loan you money, the easier it will be for you to get a mortgage, apartment, or car. Not only that, but good credit can also qualify you for more favorable rates, and over the life of a mortgage, a lower rate can make a big impact on your long-term finances.
Clearly, it’s important to keep your credit score as high as possible. But what happens when someone steals your identity? Believe it or not, identity theft can have a serious long-term effect on your credit score.
How it Happens
Identity theft can happen to anyone. Being a victim of identity theft doesn’t mean that you did something foolish; it just means that your personal information somehow got into the wrong hands. Identity theft can happen as a result of a trusted website getting breached. This happened recently with the health insurance company Anthem, and as a result, countless customers are now at risk of identity theft.
What it Entails
Identity theft can mean a number of things. It can take on the form of someone using your credit card to make fraudulent charges, or it can manifest in someone trying to assume your actual identity. When the latter occurs, the crook in question might attempt to take out loans in your name or even apply for work while pretending to be you.
How it Impacts Your Credit
Identity theft can destroy your credit in a number of ways. If, for example, someone uses your credit card information to make a purchase and you’re not able to get those fraudulent charges removed before your bill comes due, you could wind up with a late payment on your account—and late payments are known to negatively impact credit scores. Along these lines, someone with access to your personal information can apply to open up a new credit card in your name, charge up a storm, and fail to pay the bill—hence the late payment issue all over again.
Additionally, if a scammer uses your personal information to open a new credit card, it will appear on your credit report, and the more open accounts you have, the lower your score is likely to be. Remember, it’s good to open one or two credit cards and pay them off regularly to build credit, but having lots of accounts isn’t actually a good thing.
Furthermore, every time you apply for a loan or credit card, it gets recorded on your credit report. Over time, a large number of credit inquiries can negatively impact your otherwise good standing.
What to Do About It
If you’re worried that you’ve been a victim of identity theft, you should take action immediately. First, put a fraud alert on your credit report, which lets potential lenders know that you’ve been a victim of identity theft. You can also sign up for a credit freeze to prevent someone from opening a new account in your name.
Next, contact your credit card company, bank, and any other institution that may have been affected. You should also file a police report with your local law enforcement office and ask for further advice as to which agencies to contact and what steps to take.
When left unaddressed, identity theft can have serious repercussions. The sooner you act, the better your chances of preserving your credit and coming away as unscathed as possible.