How Identity Theft Can Impact Your Credit Score

Did you know if you are a victim of identity theft that you are more likely to have a lower credit score?

Why is that? To answer this question, it is important to understand what information is used to calculate a consumers credit score.

Inquiries: Inquiries make up 10% of a consumer’s credit score using the FICO algorithm.

When an identity thief applies for new credit using the victim’s personal identifying information (name, Social Security number, date of birth, etc), a hard inquiry will subsequently appear on the victim’s credit report. According to Fair Isaac Corporation, a hard inquiry will reduce a consumers credit score by about five points. The number of inquiries may even become a reason for a credit denial because “people with six inquiries or more on their credit reports can be up to eight times more likely to declare bankruptcy than people with no inquiries on their reports.” Inquiries for new credit can remain on file for 2 years, but the FICO score models only consider inquiries made in the preceding 12 months.

New Accounts: New credit makes up 10% of a consumer’s credit score using the FICO algorithm.

When the identity thief’s credit application is approved, it will result in the opening of a new credit account. Generally, new credit lowers a consumer’s average account age, which lowers the victim’s length of credit history and results in a lower credit score.

Length of Credit History: Makes up 15% of a consumer’s credit score using the FICO algorithm.

Generally, longer credit history that is positive, will result in higher credit scores. Credit history is calculated by determining how long your credit accounts have been opened for and averaged with length of time since you opened your newest account.

Credit Mix: Makes up 10% of a consumer’s credit score using the FICO algorithm.

One exception to new credit lowering a consumer’s credit score may occur when the new credit diversifies the consumer’s types of credit. For example, if the consumer did not have a mortgage before and the new credit is for a home loan, then the new credit may help to increase the consumer’s credit score because of the different credit types on file. However, fraudulent mortgages are not as common as other types of credit, such as credit cards, utilities, or auto loans, which most consumers already have on their credit reports.

Payment History: Makes up 35% of a consumer’s credit score using the FICO algorithm.

Payment history is a record of how consumers have paid their credit obligations over time. Payment history is a major calculation used in credit scores because it is considered to be a reliable predictor of how consumers will pay bills in the future.

Obviously, identity, thieves, do not make payments, generally on fraudulent accounts. As a result, the victims credit file will begin to be polluted with inaccurate payment history, e.g., 30, 60, 90, 120 days late.

Accounts open by imposters often result in collection accounts because of nonpayment. Debt collectors may report delinquent accounts for up to seven years from the original date of delinquency for the underlying debt or the date of the first miss payment on the account, after which the account was not paid on to bring the account balance current.

Likewise, the number of accounts being reported with delinquent payment history can significantly reduce a consumer credit score. Meaning identity that victims who have multiple accounts opened in their name and payments are not made on the fraudulent account accounts, timely, or otherwise, often experience a significant credit score decrease-maybe even hundreds of points lower than before the fraudulent accounts were opened.

Amount of Debt: Makes up 30% of a consumer’s credit score using the FICO algorithm.

According to FICO, the amount of debt a consumer has is a reliable predictor for how the consumer will likely pay future debts. The five factors that are considering when scoring a consumer’s file based on amount of debt include:

The amount owed on all credit;
The amount owed on different types of credit;
How many accounts have balances;
Credit utilization ratio on revolving accounts; and,
How much of the installment loan amount is still owed, compared with the original loan amount.

In my opinion, factors 1 and 3 through 5 have the most significant impact on identity, theft victims. First, all credit means all credit. Accounts opened with authorization and accounts opened without authorization. As a result, the first factor will include all fraudulent account balances when calculating the total dollar amount owed by the identity theft victim.

Secondly, as stated above, generally identity, thieves, do not make payments on unauthorized accounts. As a result, the accounts will not be paid off and will carry a balance, which is often reported as a past due balance.

Thirdly, again, because identity thieves, generally do not make payments on fraudulent accounts, the victims credit utilization ratio will be at 100% and sometimes even greater when the account balances exceed credit limits.

Fourthly, like credit cards, installment loans, such as auto loans or short-term loans, opened due to fraud, will not be paid by the identity thief. This results in a balance owed and more often than not a past due balance owed for an auto loan that was not authorized by the identity, theft victim.

Learn More:

What Can You do to Improve Your Credit Score if You’ve Been a Victim of Identity Theft?

Here are several actions you can take to fix your credit and protect yourself from further damage:

Place a Fraud Alert or Freeze Your Credit A fraud alert notifies lenders to take extra steps to verify your identity before opening new accounts. If you’re concerned about someone using your information to open new accounts, a credit freeze can prevent unauthorized access to your credit report altogether.

Dispute Errors on Your Credit Report If you find inaccurate information on your credit report, such as fraudulent accounts or missed payments caused by identity theft, it’s important to dispute these errors. The law requires credit reporting agencies to investigate disputes and remove incorrect information.

Hire The Adkins Firm. Navigating credit disputes and identity theft cases can be complex and time-consuming. Attorney Micah Adkins is an experienced attorney who focuses on representing clients with credit report errors due to fraud and can guide you through the process, ensuring that all errors are corrected, and your credit is restored. We can also help you understand your rights and fight to clear your good name.

Monitor Your Credit Regularly Keeping an eye on your credit reports is crucial to catching any further fraudulent activity. Many people don’t realize that fraud can go unnoticed for months. Regular monitoring allows you to detect problems early and act quickly.

Report Identity Theft In addition to disputing errors with credit bureaus, report identity theft to the Federal Trade Commission (FTC) and your local law enforcement. This creates an official record of the fraud and helps with future legal action if needed.

What do consumers who have an 800+ score have in common?

How Can The Adkins Firm Can Help?

If you’re struggling with identity theft and credit report errors, partnering with our firm in these cases can make all the difference. Here’s how we can assist you:

Legal Expertise: We understand the laws surrounding credit report rights and remedies under the Fair Credit Reporting Act, ensuring your rights are protected and your credit and good name is restored.
Dispute Resolution: We work with credit bureaus, creditors, and collection agencies to resolve errors quickly and effectively.
Fraud Prevention: We help you understand how to safeguard your information and prevent future incidents of identity theft.
Peace of Mind: With our help, you can focus on rebuilding your financial future, knowing that your credit issues are being handled by experienced professionals.

Get Help Today

If you’ve been a victim of identity theft or have errors on your credit report, don’t wait to take action. The Adkins Firm focuses on helping clients like you fix credit report errors and recover from identity theft.

Contact us today to schedule a free consultation and learn how we can help you recover under the Fair Credit Reporting Act and reclaim your good name.