How Does Identity Theft Affect Your Credit Score?

Cole Mayer  | 

Your identity was stolen. Not only are the criminals using your credit card, but they are also taking out more credit cards in your name using your Social Security Number. Every hard credit check is hurting your credit score. What do you do when your identity is stolen, and your credit is tanking? Let’s go over what identity theft can do to your credit score, and steps to take when you discover you are a victim to minimize harm.

There are three major scenarios for identity and card theft: One where the fraudsters have your Social Security Number, one where they only have your credit card, or when your debit card is stolen. Here’s how they differ, from best-case to worst-case scenario.

A Stolen Credit Card

The best scenario is for just your credit card to be stolen, likely through one of the most common credit card frauds. At worst, the thief will attempt to max out your credit line, preventing you from making purchases, and possibly incurring overage charges.

In this case, you can dispute the charges as soon as your realize you are a victim. The penalty for credit card fraud to your credit score is light; in fact, if caught early, there may be no penalty. Do note that businesses have 30 days to investigate a fraud claim. With the fraudulent purchases reversed and a fraud alert on your credit card, you can carry on as normal.

How do you report credit card theft? The Federal Trade Commission provides a checklist of steps to take when you suspect a credit card has been stolen. They note that, if you card is stolen and you report the stolen card after it has been used, you are only liable for up to $50 of the fraudulent purchases. Credit card monitoring, offered free by some lenders or as a paid add-on to your account, can help prevent this by identifying potential fraud and alerting you. If only your number, but not the physical card was stolen, or you report the missing card prior to charges, you are not liable for the fraudulent purchases.

A Stolen Debit Card

The only major difference between a stolen credit card and a stolen debit card is simple: with debit, money is taken directly out of your account instead of using credit to pay. While credit cards delay payment to a single monthly payment to your credit card lender, the debit card immediately withdraws the money.

A fraudster who has your debit card number can drain your account in minutes, leaving you with no money to pay for anything. While a successful fraud investigation will return your money, it means you have an empty account in the meantime.

In turn, this could prevent you from making payments on anything from car loans to mortgages, or even credit cards connected to the same account as your debit card. As your payment history, which includes late payments, makes up 35 percent of your credit score, this could negatively affect your score. In order to to prevent this, consider having multiple accounts, such as a separate savings and a checking account, with a debit card only tied to one. This way, you will have a backup account to tide you over until your money is returned.

A Stolen Identity

The worst-case scenario is discovering your Social Security Number was stolen. With your SSN in hand, the fraudster can open up any number of accounts, pay for medical bills, and more.

Imagine this scenario: A fraudster has obtained your SSN through hacking. With no qualms, they apply for 30 credit cards. Each one is maxed out as the fraudster goes on a spending spree. Worse, the fraudster has changed the mailing address for your bills, so the new cards are not discovered for a couple months.

Each hard inquiry, made by each lender for individual credit cards, hurts your credit score. With the cards maxed out, your credit utilization ratio will be high, also penalizing your score. Plus, the payments on all of those cards is late, and all are tied to your SSN and credit score. A loss of 100 points on your credit is not unheard of.

The Federal Trade Commission has steps you can take immediately and in the long-term for when you discover identity theft.

Some important steps include instituting a credit freeze, which stops lenders from inquiring with the credit bureaus. If you only suspect fraud, you can put an initial fraud alert on your credit score, which requires lenders to notify you of their inquiries, and makes opening new accounts and loans harder overall. This lasts for 90 days.

With proof of fraud, an extended fraud alert will be placed for seven years, or until you lift the alert. Neither of these negatively affects your credit score. Both require lenders to take reasonable steps to verify your identity. With an extended alert, you get an additional free credit report on top of your yearly free report from each agency, and your name is taken off the prescreened name list, meaning no credit card offers in the mail.

If just your credit or debit card is stolen, you likely won’t face any credit score consequences, unless you are left unable to make other payments on time. Identity theft, especially of your Social Security Number, however, can have serious ramifications. Even with a hit to your credit score, you can start rebuilding your score, including through using a credit card.


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Cole Mayer is an online marketing specialist and corporate blog writer. A former newspaper journalist, he spends his free time freelance writing, playing video games, and learning about every subject under the sun. Follow Cole on Twitter: @ColeMayer42

This post was updated June 20, 2017. It was originally published April 28, 2017.